CESTAT Hyderabad Quashes Service Tax Demand On UltraTech Over Railway Wagon Freight Concession

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the freight concession granted by the Indian Railways under the Liberalized Wagon Investment Scheme (LWIS) is a policy incentive and not consideration for any taxable service.

A coram of Judicial Member Justice Angad Prasad and Technical Member P. Anjani Kumar, giving relief to UltraTech Cement observed,

"We hold that the appellant has not rendered any taxable service to the Indian Railways under LWIS. The freight concession granted under the scheme is merely a policy incentive linked to capital investment and cannot be regarded as consideration for 'supply of tangible goods for use service'. Accordingly, the impugned orders confirming the demand of service tax, interest and penalties are not sustainable in law."

The tribunal consequently set aside the service tax demand, interest and penalties raised against UltraTech Cement Ltd.

The tribunal was hearing six appeals in which the tax department claimed that UltraTech had supplied its privately owned railway wagons to the railways under the LWIS and that the freight concession granted under the scheme was consideration for the taxable service of "Supply of Tangible Goods for Use" under the Finance Act, 1994.

UltraTech argued that it had procured the wagons solely to transport its own goods and that the railways continued to provide transportation services to it. According to the company, the freight concession was a policy incentive aimed at encouraging private investment in railway infrastructure and could not be treated as consideration for any independent service.

Accepting the company's submissions, the tribunal said levy of service tax requires an identifiable service provider, service recipient, taxable activity and consideration.

It found that UltraTech had not undertaken any contractual obligation to provide a service to the Railways. Instead, the Railways remained the provider of transportation services, while the freight concession merely reduced the freight payable by the company.

Rejecting the department's stand, the tribunal was of the opinion that concession was linked to UltraTech's capital investment under the LWIS rather than any service allegedly rendered to the railways.

Since there was no identifiable service or consideration flowing for such service, the freight concession could not constitute assessable value and therefore no taxable. 

The tribunal accordingly allowed all six appeals and set aside the service tax demand, interest, and penalties.

For Appellant: Advocate Ch. Sumanth, 

For Respondent (Revenue): B. Sangameshwar Rao, Authorized Representative (AR)