No Service Tax on Konkan Railway for use of Mangalore-Roha Line: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable by Konkan Railway for the use of the Mangalore-Roha Line.

It was noticed that the appellant entered into an agreement on 15.7.2002 with the Ministry of Railways, Government of Maharashtra, Goa and Kerala for construction of a new Broad Gauge Railway Line between Mangalore and Roha and it was allowing Indian Railways to use the said Railways Lines including signals and systems for transportation of Goods and passengers between Roha and Mangalore. It was receiving consideration for the use of assets in terms of apportionment of revenue for such usage of its infrastructure facilities including railway tracks by the agreement. 

It was further noticed by the department that transportation of goods and passengers was provided by Indian Railways and not by the appellant and collection of revenue was done by Indian Railways only that was being apportioned by stakeholders, namely, participating State Governments and Indian Railways and the same was nothing but charges paid for allowing Indian Railways to use the infrastructure of the appellant that is classifiable under ‘Business Support Service’  taxable under Section 66B(44) of Finance Act for the period on or after 1.7.2012 and under Section 65(104c) read with Section 105 (zzzq) of the Finance Act, 1944 for the prior period.

Two show cause notices were accordingly issued dated 20.10.2014 for the period 2009 to 2014 and on dated 2.5.2016 for the period 2014 to 2015 demanding duty of Rs.3,05,63,55,594/- and Rs.84,86,10,952/- respectively with the proposal for interest under Section 75 of the Finance Act, 1994, penalty under Sections 76, 77  as well as equal penalty under Section 78 of the Finance Act, 1994 for the extended period. 

The appellant contended that, as per the agreement, the company will be deemed to be a railway company under the provisions of the Indian Railways Act, of 1890. The main objective of the company was to construct Konkan Railway lines and operate them for a period up to which the company discharges its liabilities arising out of the project, and the cost of service shall be met by equity and by collecting loans, debentures, bonds, etc., with the equity participation of Indian Railways of more than 50%.

The appellant urged that no service can be said to have been rendered by the Appellant to the railway since both are not two separate entities.

The tribunal comprising of Dr Suvendu Kumar Pati, Member (Judicial) and Mr Anil G Shakkarwar, Member (Technical) has held that the appellant and the Indian Railways are not separate entities. The Indian Railways are exempt from paying service tax for the prior period up to October 1, 2012. Therefore, confirmation of demand by the Commissioner is unsustainable, for which the order passed by the Commissioner is required to be set aside.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates