Lease of Wagons to Railways can’t be treated as ‘Supply of Tangible Goods’ as VAT/Sales Tax already paid: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore bench has held that the activity undertaken by the appellants does not constitute a taxable service of “Supply of Tangible Goods” since VAT/Sales Tax was already paid by the respondent-Company.

The appellants are engaged in mining and sale/export of iron ore and are registered with service tax department. The appellants have availed ‘own your wagon scheme’ introduced by Indian Railways by purchasing 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.

The CESTAT bench comprising Technical Member Mr. P Anjani Kumar and Judicial Member Mr. P Dinesha held 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, therefore, the activity undertaken by the appellants does not constitute a taxable service of “Supply of Tangible Goods”. In view of the same, all the impugned orders are liable to be set aside and appeals are allowed with consequential relief, if any, as per law. We order so,” the Tribunal said.

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