Service Tax on Railway License Fees Treated as Support Services: Patna HC Declines Interference Citing Alternate Remedy [Read Order]

The High Court of Patna, declined to interfere with a service tax demand, treating Railway license fees as "support services" under the Reverse Charge Mechanism (RCM) and citing the availability of an appellate remedy.

Singh Caterers and Vendors,petitioner-assessee,a partnership firm offering catering services in trains, resumed business in 2014 and obtained service tax registration on 11.02.2014. The dispute arose from an order dated 23.12.2022, confirming a demand of ₹1.38 crore in service tax, an equal amount as penalty under Section 78 of the Finance Act, and interest.

As per the Show Cause Notice (SCN) dated 16.04.2019, the petitioner had failed to pay service tax under the RCM on license fees paid to Indian Railways for catering contracts. The department treated the facilities provided by Railways—like pantry car access and marketing rights as “support services” and considered them taxable.

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The petitioner argued that the SCN was issued without properly examining Section 66B of the Finance Act, 1994 and without conducting pre-show-cause consultation as per Central Board of Excise and Customs(CBEC) guidelines. It contended that the license agreement primarily allowed food sale and involved only partial renting of Railway property, not support services. It also challenged the extended limitation period and penalty, claiming the issue was one of legal interpretation.

The adjudicating authority, however, held that the services provided by Indian Railways fell under taxable “support services” post 01.10.2012, and that the petitioner suppressed facts to evade tax. As a result, the extended limitation period and penalty under Section 78 were invoked.

The division bench of Justice Rajeev Ranjan Prasad and Justice Ramesh Chand Malviya heard both parties and noted that the adjudicating authority had invoked the extended limitation under Section 73(1) of the Finance Act, 1994, alleging the petitioner intended to evade service tax.

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It referred to past cases including Amadeus India Pvt. Ltd. and Cosmic Dye Chemical. In Amadeus, the Delhi High Court had entertained a writ despite the department’s claim of suppression. In Cosmic Dye, the Supreme Court held that suppression must be willful to justify extended limitation.

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However, the bench found this case to be different. The petitioner had not challenged the show cause notice or raised issues about limitation or pre-show-cause consultation. Instead, they had argued during the hearing that service tax was not applicable on the license granted by Railways.

The authority had held that such licensing amounted to a “support service” and was taxable on a reverse charge basis. It relied on changes made by the Finance Act, 2015, and a CBIC circular which clarified that payments for licenses or permissions from the government were taxable.

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The court noted that the petitioner had an alternative remedy through appeal, which they had not used. It held that since the matter involved factual issues, it was best left to the appellate authority.

The bench refused to interfere under its writ jurisdiction but allowed the petitioner to file an appeal within eight weeks. The appellate authority was directed to consider the delay, as the writ had been pending since February 14, 2023.

To Read the full text of the Order CLICK HERE

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