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TMI Blog2024 (6) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... aving supplied the rakes to railways the respondents are precluded from giving the same rakes to anybody else for the period in the contract. From the above it is apparent that there is a transfer of right to use of railways rakes and therefore it would consist of deemed sale as described as under article 366 (29A) of the constitution. In the case of M/s. MSPL Vs. Commissioner of Central Excise Customs Belgaum [ 2022 (2) TMI 901 - CESTAT BANGALORE] where it was held that ' 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, therefore, the activity undertaken by the appellants does not constitute a taxable service of Supply of Tangible Goods .' The effective control and possession has been transferred to the Railways. In this circumstances the transaction would qualify as deemed sale under article 366 (29A) and therefore cannot be taxed as a service. Revenue has also sought to distinguish the decisions on the ground that the respondents have not paid VAT on the transaction. It has been argued that the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EBATE mentions that the freight rebate mentioned under clause 2.5 shall be given for a period of 10 years from the commencement date . Clause 3.0 of the agreement under head GUARANTEE/WARRANTY mentions that In case of direct procurement of wagons, investors will be required to incorporate guarantee/warrantee clause in the purchase contract with the wagon manufacture as under supplies shall be fully guaranteed against any manufacturing defect/poor workmanship quality etc. for a period of 24 months commissioning or 30 months from the date of delivery, whichever is earlier. During this investor will arrange to repair/replace any defective part free of cost or replace complete set if required. iv. Clause 5.6 of the agreement dated 21/3 / 2007 14/3 / 2007 08/01/2008 and 29/1 / 2008 under head Ownership of wagons , mentions that ownership of wagons procured under wagon Investment Scheme (WIS) shall get transferred to the Indian Railway after 10 Years. 2.2. Learned DR argued that railways have given 10% rebate on the freight to the respondent for a period of 10 years. He also pointed out that the respondents are responsible for repair and replacement of any defective part of wagon and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agons under the scheme can be considered as provision of service and the freight rebate obtained by the respondents is nothing but a consideration in lieu of the hiring of Wagons. He pointed out that this argument get additional force on account of the fact that respondents have not discharged VAT/Sales tax on the wagons. Learned DR further pointed out that in the instant case the respondents have provided tangible goods, namely wagons, to railway administration for use without any condition attached to the said use. He pointed out that in lieu of supply of those wagons the railway administration has allowed a 10% freight rebate to the respondent. He pointed out that such rebate is not given to clients who had not obtained for the said scheme. 2.5. Learned DR further pointed out that the Commissioner (Appeals) has cited decision of authority on advance ruling New Delhi in the case of SICPA India Private Limited (ruling no.AAR-ST-02-2016 dated 20.01.2016). He pointed out that the facts in the instant case are different from those involved in the above ruling. 2.6. Learned Counsel appearing for respondents relied on the impugned order. He also pointed out that he matter has been deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is employment: (c) fees taken in any Court or tribunal established under any law for the time being in force. Thus, it is seen that Section 658 (44) of Finance Act, 1994, the Article 366 (29A) to draw a line between service and deemed sale. 3.1 Hon ble Apex Court in the case of BSNL has laid down following principals for an activity to constitute deemed sale as transfer of right to use. 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 good; c. The transferee should have a legal right to use the goods consequently all legal consequence of such use (including any permission or licenses required therefore should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the stature viz, a transfer of the right us use: and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t justified in recording a finding that the appellant had provided supply of tangible goods service to the Indian Railways. In the aforementioned case the Tribunal was examining the levy of service tax for a period prior to the introduction of negative list. The revenue has also sought to distinguish this decision on that count. However it needs to be appreciated that the line drawn between deemed sale and provision of service remains the same before and after introduction of negative list. When he activity falls under the category of deemed sale in terms of Article 366 (29)(a) then it cannot be a service whether before or after the introduction of negative list. 5. In the case of M/s. MSPL Vs. Commissioner of Central Excise Customs Belgaum in 2022-TIOL-223-CESTAT-BANG. The tribunal has observed as follows: 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. General Agreement: Whereas the Lessee desires to take on lease from Lessor and Lessor desires to lease to Lessee 60 (number) of BOXNHS (type) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Lessor in the prescribed manner. 7.0 Guaranteed Clearance of Traffic: The Railway will provide guaranteed clearance of 11 (Eleven) rakes to run between VYS to SVM of IRON ORE (commodity) per month for a period of 20 years from the commencement date. The scheduling of demand and supply of wagons will be decided between the Lessor and Lessee. 10.0 Maintenance: 10.1 No maintenance charges will be levied for maintenance undertaken by IR as per standard 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 Arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session and effective control and such transfer of goods should not be a sale or deemed sale. Comparing the provisions with the factual matrix of the case, we find that in the instant case, in terms of the agreement which we discuss in the forthcoming paras, right of possession and effective control of the wagons is with the Indian Railways 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Chief Minister, Government of Karnataka, to waive off penalty and interest vide letter No. MSPL/2018- 19 dated 25.09.2018. A copy of letter enclosed for your ready reference. 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 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 658(44) of the Finance Act, 1994, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of right to use of goods, essential is, goods must be available for delivery. In the instant case, the vessel was available for delivery and in fact, had been delivered. There is no dispute as to the vessel and the charterer 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 SC, 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. 3.6 We find that Tribunal in the case of Kinetic Communications Ltd. vs. CCE, Pune: 2017 (3) GSTL 31 (Tri.-Mum.) 2017-TIOL-762-CESTAT-MUM held that: 7. It is seen from the records that there is no dispute as to the fact that 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 imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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