2023 (6) TMI 1001 - AT - Service Tax

Levy of Service Tax - business support service - allowing Indian Railways to use the said Railways Lines including signals and systems for transportation of Goods and passengers between Roha and Mangalore and received consideration for use of assets in terms of apportionment of revenue - HELD THAT - From the narration, coupled with purpose of bringing the appellant into existence that was being disclosed in the Budget Speech of the Finance Minister, it can only be stated that respective states have entered into an agreement with the Railway company owned by Government of India so as to facilitate early completion of railway line with financial, infrastructural and managerial support so that project would be executed in a better ways and railway services passing through those participating states would not suffer due to administrative, finances and other constraints. Apart from this moto, creation of the Appellant company for any other purpose is not apparently visible from the work agreement or relied upon documents on which duty demand is based - there is no flow of consideration to the appellant company and to the Indian Railway even as a separate unit so as to subject it to an independent entity under the category of service. Moreover, Indian Railways is not a separate unit that of the appellant company since it is deemed owner and a part of it having larger share during the relevant period for which show cause notice was issued. Therefore, the demand of service tax on this score on the appellant company is also not sustainable. Section 65(105)(zzzq) of Finance Act defined taxable service to mean any service provided or to be provided to any person, by any other person, in relation to support services of Business or Commerce and our finding as referred above would go to say that both the appellant and Indian Railways are not separate entities, it is thus held that the Appellant s case is also covered by Board s Circular No.109/3/2009-S.T., dated 23.2.2009. The confirmation of demand by the Commissioner is unsustainable, for which the order passed by the Commissioner is required to be set aside - appeal allowed.

Summary

Issues Involved:
1. Confirmation of duty demand along with interest and penalty for the extended period.
2. Maintainability of the appeal on judicial precedent.
3. Taxability on the income of State Government.
4. Legality of the order being assailed.

Summary:

1. Confirmation of Duty Demand:
The appellant, a unit constituted by Indian Railways and four State Governments, was issued two show cause notices for providing business support service taxable under the Finance Act, 1994. The demand included Rs. 3,05,63,55,594/- and Rs. 84,86,10,952/- for the periods 2009-2014 and 2014-2015, respectively, along with interest and penalties. The appellant contested the demand unsuccessfully before approaching the Tribunal.

2. Maintainability of Appeal on Judicial Precedent:
During the appeal, the appellant cited previous Tribunal decisions in Mudra Ports & Special Economic Zone Ltd. and Bharuch Dahej Railway Co. Ltd., arguing that these cases set a binding precedent. The respondent department argued that since appeals in these cases were admitted by the Supreme Court, the decisions were not final. However, the Tribunal accepted the precedent value of these decisions, referencing the principle of binding judicial precedent.

3. Taxability on the Income of State Government:
The Tribunal examined the constitutional provisions under Articles 274 and 289, which exempt State property and income from Union taxation unless a special law is made with the President's recommendation. The Tribunal concluded that general taxation laws do not apply to States unless specific provisions are met. Therefore, the demand for service tax on the appellant, constituted by four States and Indian Railways, was deemed unsustainable.

4. Legality of the Order Being Assailed:
The appellant argued that it was a "deemed Railway Company" under the Indian Railways Act, 1890, and that no service was rendered to Indian Railways as both entities were not separate. The respondent countered that the appellant and Indian Railways were distinct entities. The Tribunal found that the appellant and Indian Railways were not separate entities for the purpose of service tax. The Tribunal also noted that the appellant's activities did not fall under the definition of "support services of Business or Commerce" as per the Finance Act, 1994. Consequently, the demand for service tax was found to be unsustainable.

Conclusion:
The Tribunal set aside the Commissioner's order confirming the demand for service tax, allowing the appeal with consequential relief. The order was pronounced in open court on 22.06.2023.