Services Clearly Relating to Maintenance of Railway Locomotives Exempt from Tax: CESTAT allows Appeal [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, allowed an appeal and held that the services that clearly relate to the maintenance of railway locomotives are exempt from tax.

The appellant, M/s. Faiveley Transport Rail Technologies, Hosur, rendered services to South Western Railway and also executed services as a sub-contractor under a contract involving its foreign affiliate in connection with the Delhi Airport Metro Express Ltd (DAMEL) project. Exemption was claimed for the domestic services while the DAMEL-related services were claimed as export on the ground that invoices were raised in foreign currency and consideration was received in convertible foreign exchange.

The counsel for the appellant submitted that the services are fully exempt under Notification No. 24/2009-ST. Further, it was contended that the denial of exemption on procedural grounds such as invoice format or non-mention of registration number is unsustainable as per Auro Laboratories Ltd. v. CCE (2016) wherein it was held that substantive benefit cannot be denied for procedural lapses.

The opposing counsel argued that the Appellant wrongly classified services and availed exemption. It was also contended that invoices did not satisfy statutory requirements and appellant failed to produce quantification of exempted services.

CESTAT noted that both services need to be examined in the context of classification, exemption and export of services under the Finance Act, 1994 and the Export of Service Rules, 2005. The tribunal observed that the appellant has undertaken activities such as maintenance, overhaul and testing of air dryers forming part of railway locomotives.

CESTAT opined that the dominant nature of services is clearly that of maintenance and repair of railway equipment.

The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) held that the denial of exemption is unsustainable and that the services are fully exempt under the said Notification.

On the DAMEL related service issue, it was held that the services rendered by the appellant to a foreign principal under a sub-contracting arrangement qualify as export of services under the Export of Service Rules, 2005 and are not liable to service tax.

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