9911796707
TMI Blog2024 (3) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... xable service classified under the category of Supply of Tangible Goods as defined by Section 65 (105)(zzzzj) of the Finance Act, 1994." 2. M/s. Rashtriya Chemicals & Fertilizers Ltd., Thal Unit [the appellant] is a Public Sector Undertaking engaged in the manufacture of various fertilizers as well as chemicals in bulk quantity. To facilitate the transportation of such bulk quantity of final products as well as the required raw materials, the appellant laid down railway lines from its factory to the main line of Indian Railways. 3. The Ministry of Railways introduced a 'Own Your Wagon Scheme' under which an appeal was made to the industry to invest in the procurement of railway wagons in order to increase the availability of wagons for movement of goods. Accordingly, a Lease Agreement for 'Own Your Wagon Scheme' (Category-B) dated 12.06.2009 was entered into between the appellant (the lessor) and the Railways (the lessee) under which the Railways took on lease from the appellant 416 wagons. The Agreement was to remain in force for a period of 20 years and the Railways had to pay to the appellant lease charges on the current cost of wagons @ 16% per annum for the primary period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived lease rent amounting to Rs. 13,04,29,833/- from the Railways during the period 2008-09 to 2011-12 (Upto December, 2011). This activity of the assessee of leasing railway wagons to Railways is liable to Service Tax under the category of "Supply of tangible goods service" under Section 65(105)(zzzzj)." (emphasis supplied) 6. The appellant filed a detailed reply dated 18.06.2012 to the aforesaid show cause notice and denied the allegations made therein. The appellant pointed out that in terms of the Agreement there was a transfer of right to use the wagons in favour of the Railways and the appellant ceased to have any effective control over the wagons. The appellant placed reliance upon the Circular dated 29.02.2008 issued by the department and also upon a decision of the Supreme Court in State of Andhra Pradesh and another vs. Rashtriya Ispat Nigam Ltd. [2013 (31) S.T.R. 513 (S.C.)] and contented that the appellant had not provided supply of tangible goods service to the Railways. The appellant also pointed out that it had paid VAT under the State Act treating the transaction to be a deemed sale. 7. The Commissioner did not accept the contention of the appellant and confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed Wagon Investment Scheme, 2008 as also a Freight Marketing Circular dated 29.10.2019 and concluded: "4.3 The Own Your Wagon Scheme was launched in 1992 to tap the private sector for augmenting wagon supply. Under the scheme, private sector firms could procure wagons either through Indian Railways or directly from approved wagon builders, own them and lease them to the railways. ***** This scheme was revised and recast as the Wagon Investment Scheme in 2005 and the Liberalized Wagon Investment Scheme in 2008. In the documents explaining the scheme of 2008, following has been stated.***** ***** 4.4 From the facts as detailed above no legal right to possession of these wagons have been transferred by the Appellant to the Railways. It will be only after the expiry of tertiary lease period (10 year extension over 20 years of initial period of lease), that the ownership in the wagon will be transferred to Railways. Further as per the details of the scheme maintenance of the wagon etc during the period of lease is responsibility of the Appellants and railway undertake them as per the agreement on the behalf of Appellants. In our view the purpose of the cheme was to make availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Central Excise and Customs vs. MSPL Ltd. [2023 (69) G.S.T.L. 225 (S.C.)] that has dismissed the appeal filed by the department to the assail the aforesaid order of the Division Bench of the Tribunal in MSPL. Learned counsel also pointed out that the decision of the Tribunal in EIH, on which reliance had been placed in the reference order, would not come to the aid of the department for the reason that from the nature of the transaction in the matter it is clear that effective control and possession of the aircraft remained with the appellant, whereas in the present case the possession and effective control of the wagons is of the Railways. Learned counsel also placed reliance upon a certificate dated 08.11.2015 issued by the Chartered Accountant certifying that after verification of the VAT records of the appellant, it is clear that VAT was paid by the appellant on accrual basis on the invoice raised by the appellant on Railways for lease rent. 14. Shri Pramod Kumar Maurya, learned authorized representative for the department, however, submitted that effective control and possession of the wagons remained with the appellant and, therefore, the service rendered by the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r without transfer of right of possession and effective control. The relevant portions of the Agreement are reproduced below: "1.0 GENERAL AGREEMENT: Whereas the lessee desires to take on lease from Lessor and Lessor desires to lease to Lessee 416 (number) of BCN A(type) wagons procured through either the Ministry of Railways or builders approved by them subject to the terms and conditions hereafter appearing. Now, therefore, in consideration of the mutual premises, covenants and agreements set forth herein, the parties hereby agree as follows: ***** 2.4 CURRENT COST: The actual procurement price paid by the party is Rs. 12.91 lakhs per wagon as per Railway Board's letter no. 96/TC(FM)/4/5 dated 10/05/2001 and 18/05/2001. Central Excise Duty (net of MODVAT) and any other statutory tax/duty paid by the Lessor will also form part of the cost of the wagon for the purpose of lease charge. ***** 3. VALIDITY OF AGREEMENT OF LEASE: This agreement shall remain in force for a period of TWENTY years from the commencement date(s). ***** 5. LEASE CHAREGES: The Lessee shall pay to the Lessor, lease charges on the current cost of wagons from the commencement date as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime in excess of 50% of the normal prescribed free time in a month is 120 hrs then guaranteed clearance for the next month become 25000 tonnes i.e. reduction by 5 days) 10.0 MAINTENANCE: 10.1 No maintenance charges will be levied for maintenance undertaken by IR as per standard norms. 10.2 MODIFICATION 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 modifications charged to the revenue expenditure of Railways which are part of the revenue maintenance will be carried out at the Lessee's cost." (emphasis supplied) 21. It would be seen from the aforesaid terms of the Agreement that the Railways took 416 wagons on lease from the appellant for which the Railways have to pay lease charges @ 16% per annum of the current cost of wagons for the initial period of 10 years and @ 1% per annum of the cost of wagons for the subsequent period of 10 years. The Railways, however, will have to provide a guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own cost. 23. The reference order, as noticed above, makes reference to some documents explaining the Liberalized Wagon Investment Scheme, 2008 and Freight Marketing Circular of 2019 for the purpose of determining whether the supply of wagons to Railways would be a supply of tangible goods service but neither the show cause notice nor the impugned order make reference to the said documents. In fact, the show cause notice and the order passed by the Commissioner have placed reliance only on the relevant clauses of the Agreement dated 12.06.2009, which alone was required to be examined for determining whether the lease of the wagons by the appellant to the Railways would be a taxable service under section 65(105)(zzzzj) of the Finance Act. It is this Agreement that was referred to in the show cause notice to allege that the lease of wagons by the appellant to the Railways would amount to supply of tangible goods and it is this Agreement which has also been considered by the Commissioner to arrive at a conclusion that the appellant provided supply of tangible goods service to the Railways. 24. Learned counsel for the appellant also contended that the transaction undertaken in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st have the following attributes: a. There must be goods available for delivery; b. There must be 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 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 of the transferor this is the necessary concomitant of the plain language of the statute- - viz. a 'transfer of the right to use' and not merely a license to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." (emphasis supplied) 29. It can safely be said that under the Sales Tax Act, there is transfer of possession and effective control in goods for levy of sales tax, while there is no such transfer of possession and effective control under the Finance Act for levy of service tax. 30. In the present case, as noticed above, the transaction between appellant and the Railways would qualify as transfer of ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no delay in delivering the product to the customers. He also submits that making available the vehicles through out the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use Transit Mixers. ***** 42. In addition to the above clauses, we have thoroughly perused and analysed the agreement between the petitioners and Grasim. ***** 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 Grasim's batching plants in Miyapur and Nacharam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replaced by the owners on valid compliant about their misbehaviour lodged by the assessee. On a true and fair analysis of the several clauses of the charter - agreements, considered as a whole, mere employment of the personnel and crew by owners does not derogate from the reality of transfer of possession to and effective control by the assessee over the tankers, for the use of these tangible goods." (emphasis supplied) 34. In Gimmco Limited vs. Commissioner of Central Excise and Service Tax, Nagpur [2017 (48) STR 476 (Tri.- Mum.)] , the Tribunal observed as follows: "5.2 Revenue's contention is based on the clauses in the agreement relating to restrictions of use by the lessee, provision of skilled operator by the lessor and maintenance and repairs of the equipment by the lessor. Merely because restrictions are placed on the lessee, it can not be said that there is no right to use by the lessee. Such a view of the revenue does not appear to be tenable when we read carefully the provisions of the agreement. Cl. 13 of the agreement provides for Hirer's Covenants. As per Cl. 13.1, the hirer will use the equipment only for the purpose it is hired and shall not misuse or abuse the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the ONGC. Though the cranes are operated by the crew provided by the contractor such crew while operating a crane is under the effective control of the ONGC and its authorities. Therefore, under the contract though the normal operational time is 10 hours in a day, the ONGC is entitled to deploy the cranes, if required, to the entire period of 24 hours to perform duties the kind of which and the locations whereof is to be decided by the ONGC. The mere fact that after the operation of the crane is over on any given day the crane may come back to the owner/contractor will hardly be material to decide as to who has dominion over the crane inasmuch as the crane can be recalled for duty by the ONGC at any time. Under the contract the crane is to be operated for 26 days in a month and the remaining four days are to be treated as maintenance off days. Though the crane is not operational on the maintenance off days, yet, 50% of the operational charges is paid by the ONGC for the maintenance off days and the terms of the contract make it clear that even on the off days the crane can be called for operation by the ONGC at its sole discretion. The above features of the contract, in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions, the settled essential requirement of a transaction for the transfer of the right to use the goods are : (i) it is not the transfer of the property in goods, but it is the right to use the property in goods; (ii) Article 366(29A)(d) read with the latter part of the clause (29A) which uses the words, "and such transfer, delivery or supply"... would indicate that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; (iii) in the transaction for the transfer of the right to use goods, delivery of the goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of right to use involves transfer of both possession and control of the goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, companion equipment, cranes etc. offshore construction vessels & barges, geotechnical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliance, for use, with legal right of possession or effective control. Supply of tangible goods for use is leviable to VAT/Sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether VAT is payable or paid." (emphasis supplied) 41. Reference al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had arisen before the Chhattisgarh High Court was whether the assessment of VAT by the State Authority was bad in law for the reason that the Agreement was executed at a place outside the territory of the State of Chhattisgarh and the wagons which were purchased by the petitioner company were also not delivered or stationed within the territory of the State of Chhattisgarh. The contention of the State Government, however, was that the sale took place in the State of Chhattisgarh, irrespective of the place where the contract of sale or purchase may have been made. The High Court took note of the Explanation contained in section 2(s) of the State VAT Act and held that since the sale or purchase was in the course of inter-state trade and commerce, the State of Chhattisgarh would not have the jurisdiction to levy tax, whether the sale took place outside the State or was a sale in the course of inter-state trade and commerce. It is for this reason that the order passed by the State VAT Act Authority was set aside. This decision would not help to resolve the issue that has been referred. 44. The decision of the Tribunal in MSPL, on which reliance has been placed by the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lease charges will be based on the cost of procurement which will include the transfer price of free supply items provided by the Railways. Central Excise (Net of MODVAT) and any other statutory tax/duty paid by the Lessor will also form a part of the cost of wagons for the purpose of lease charges. 5.2 The lease charges shall be paid on the Asset Value as indicated in Clause 5.1, comprising (i) a base lease charge @ Rs. 40/- per thousand per quarter for the primary period of ten years subject to the variation formula contained in following clauses and (ii) at a flat rate of Rs. 10/- per thousand per year for the secondary lease period of ten years. This will not be subject to any variation. 6.0 Freight charges : The freight will be levied at normal tariff rate in force and will be paid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants 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. ***** 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the letter dated 11.06.2014 that this would be a deemed sale which would attract VAT and no service tax would be payable. 47. The Civil Appeal filed by the department before the Supreme Court, which is reported in 2023 (69) G.S.T.L. 225 (S.C.) [MSPL Ltd.], was dismissed by the Supreme Court and the decision is reproduced below: "Delay condoned. 2. Having gone through the impugned judgment and order(s) passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), it cannot be said that the Tribunal had committed any error which calls for interference by this Court. In fact, we are in complete agreement with the view taken by the Tribunal. 3. All these Appeals deserve to be dismissed and are, accordingly, dismissed." 48. It is seen that the Supreme Court clearly held that it was in complete agreement with the view taken by the Tribunal. Thus, the views expressed by the Tribunal on the issue can be taken to be the views of the Supreme Court. In this view of the matter, when in a similar Agreement executed between MSPL and the Railways, a categorical finding has been recorded that during the lease period the possession and effective control of the wagons was with ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
