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TMI Blog2022 (2) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... and not with the appellants. Moreover, the transaction entered into by the appellants with the Indian Railways constitutes a deemed sale in terms of Clause 29(A) of Article 366 of the Constitution of India as the appellants have demonstrated that they have paid appropriate VAT along with penalties to the Karnataka State VAT Department. It is found from the records that the Government of India, Ministry of Railways have clarified vide letter dated 11.6.2014 that this is a case of deemed sales tax under Article 366 (29A) of Constitution of India; deemed sales shall attract provisions of VAT/CST Act, as applicable in that state and that there is no service tax payable on this in leased case. Though, it can be argued that the railways are no authority to clarify the matters in respect of excisability of certain service to the service tax or sales tax for that matter, it is understandable that such a clarification will not be issued by a Ministry in the Government without having due legal consultation. It is on record that the appellants have paid the relevant VAT for the impugned transaction along with penalty though in a belated manner, the agreement entered by the appellant with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing and leasing out six rakes of railway wagons under agreements dated 23.2007 and 8.3.2007 to M/s. South Western Railway, Hubli; the dry leaves of wagons was initially for a primary period of 10 years extendable to secondary period of up to 20 years. Central Excise department proposed demand of service tax on the lease/rental charges received on lease of wagons as above under the category Supply of Tangible Goods as per Section 65(105)(zzzzj) of Finance Act, 1994. The department alleged that (i) the appellant-lessor is the absolute owner of the wagon; (ii) the cost of repairs and modification of the wagons have to be borne by the appellant-lessor; (iii) the lessor has got the right to terminate the agreement under certain circumstances; (iv) the appellants have insured the wagons; and that (v) the appellants have not paid VAT/sales tax on the transaction of the lease. 2. Learned counsel for the appellant submits that the lease agreements are for a period 10 years plus 10 years, the railways were free to use the wagons in the general pool as per their requirement; the terms of agreement clearly indicate that the appellants have transferred the right to use wagons with transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He also submits that as there was no suppression on the part of the appellants, no extended period can be alleged and penalties cannot be imposed on them. 2.3 Learned AR for the Revenue reiterates the findings of the various Orders-in-Original and Order-in-Appeal. 3. Heard both sides and perused the records of the case. In order to appreciate the true nature of the agreement between the appellants and the railways authorities, it would be beneficial to go through the relevant clauses of the agreement. QUOTE 1.0 General Agreement: Whereas the Lessee desires to take on lease from Lessor and Lessor desires to lease to Lessee 60 (number) of BOXNHS (type) wagons procured through either the Ministry of Railways or builders approved by them subject to the terms and conditions herein after appearing. 2.2 Rolling Stock Rolling stock shall mean BOXNHS, (BOXN/BCN/BTAP/BOY/BTP/BFKI/BTPN etc) leased to the Lessee for his use and shall include any individual item comprised in the rolling stock including all alterations, replacements and/or additions thereto during the period of this lease. 2.3 Lease Period The lease period shall be reckoned from the commencemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard norms. 10.2 Modifications of Wagons: The Lessee will be at liberty to make the necessary modifications/changes on the leased wagons which they would carry out on their own wagons of similar design. The changes would be made at the Lessor s cost. This additional cost will also qualify for lease charges for the remaining period of contract. However, minor modification charged to the Revenue expenditure of Railways which are part of the Revenue maintenance will be carried out at the Lessee s cost. 10.3 If the Lessor requires/owns a private siding, he will be governed by the relevant siding agreement in respect of the infrastructure facilities including maintenance of the wagons within the siding premises. 12.0 Termination of Arrangement: 12.1 In the event of termination of the arrangement by the lessor/owner on account of liquidation/merger with other company or due to any alteration/deletion in the scheme, the ownership of the leased wagons would remain with the Lessor. However, the lessor shall have the option to sell the wagons to the Lessee at a mutually agreed price. UNQUOTE On the perusal of the above, it appears that though the wagons are pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants. Moreover, the transaction entered into by the appellants with the Indian Railways constitutes a deemed sale in terms of Clause 29(A) of Article 366 of the Constitution of India as the appellants have demonstrated that they have paid appropriate VAT along with penalties to the Karnataka State VAT Department. We find from the records that the Government of India, Ministry of Railways have clarified vide letter dated 11.6.2014 that this is a case of deemed sales tax under Article 366 (29A) of Constitution of India; deemed sales shall attract provisions of VAT/CST Act, as applicable in that state and that there is no service tax payable on this in leased case. Though, it can be argued that the railways are no authority to clarify the matters in respect of excisability of certain service to the service tax or sales tax for that matter, it is understandable that such a clarification will not be issued by a Ministry in the Government without having due legal consultation. Moreover, the payment of VAT is evidenced by the proceedings No.AR.CLR.CR.38/2016-17 dated 20.6.2018 before the Advanced Ruling Authority of Karnataka VAT and the proceedings of Deputy Commissioner of Commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty though in a belated manner, the agreement entered by the appellant with the Railways cannot be deemed to be a not sale by any standard. As the VAT stands paid in view of the provision of Section 65B(44) of the Finance Act, 1944, the transaction of the appellants constitutes a deemed sale and as such, the supply of wagons by the appellants in the impugned case will automatically go out of taxable service. 3.2 We find that this issue of Supply of Tangible Goods has come before various Courts and Tribunals for scrutiny. We find that Hon ble Supreme Court in the Bharat Sanchar Nigam Ltd. vs. UOI (s) have enunciated the principle of transfer of right to goods and have held that: 91 . To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes : a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee; d. For the period during whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arterer has a legal right to use the goods, and the permission/licence has been made available to the charterer to the exclusion of the contractor. Thus, there is complete transfer of the right to use. It cannot be said that the agreement and the conditions subject to which it has been made, is not a transfer of right to use the goods, during the period of six months, the contractor has no right to give the vessel for use to anyone else. Thus in view of the provisions inserted in Article 366(29A)(d), Section 5C, and definition of sale in Section 2 of the KST Act, there is no room for doubt that there is a transfer of right to use the vessel. 3.4 We find that Andhra Pradesh High Court in the case of G.S. Lamba Sons (supra) held that: 45 . Reading the recitals and various clauses, indeed there is a transfer of the right to use Transit Mixers. All the tests as indicated hereinabove exist in the contract between the petitioners and Grasim. The vehicles are maintained by the petitioners. They appoint the drivers and fix their roster. The licences, permits and insurances are taken in their names by the petitioners, which they themselves renew. The Transit Mixers go to Gras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the capital goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the appellants. On going through the clauses of agreement, as produced before us, we find that the appellants had handed over the capital goods possession to the lessee as also the right to use. These two important factors that determine the requirement as to whether the service is a taxable service or otherwise under supply of tangible goods for use services . We find strong force in the contentions raised by the appellant that the case does not fall under supply of the tangible goods for use service. We also find that identical issue is settled by the Tribunal in the case of Praveen Engineering Works and Bhima SSK (supra) . 4. In view of the facts of the case as detailed above, our discussion and analysis and the case law cited and paraphrased above, we are of the considered opinion that in the impugned case, the appellants have transferred the right of possession and effective control of the wagons leased out by them to the South Western Railways. The appellants have also discharged applicable VAT / Sales Tax on such transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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