Whether the Railways, being part of the Ministry of Railways not liable to pay service tax?

PJ/Case Laws/2012-13/1394

Case: CENTRAL RAILWAY V/S COMMISSIONER OF CENTRAL EXCISE, NAGPUR

Citation: 2013-TIOL-75-CESTAT-MUM

Brief Facts: - The appellant, Central Railway undertook maintenance and repairs of Railway sidings owned by private parties under agreements entered into with such owners. The revenue was of the view that the activities undertaken by the Railways comes under the taxable service of "management, maintenance and repair services" as defined under section 65(105)(zzq) of the Finance Act, 1994 read with section 65(64) ibid with effect from 16/06/2005. Therefore, two show cause notices, one dated 13/10/2010 demanding service tax for the period 2005-06 to 2007-08 and another dated 03/05/2011 for the period 2010-11 were issued demanding Service tax of Rs. 2.51 crores approximately and Rs.74.22 lakhs approximately. The notices also proposed demand of interest on the service tax demanded and imposition of penalties. Notices were adjudicated vide the impugned order and the demands were confirmed along with interest thereon. Equivalent amount of penalties were also imposed under section 78 of the Finance Act, 1994 apart from penalties under sections 77 and 76 and also fees for non-filing returns levied under rule 7C of Service Tax Rules, 1994. By aggrieving these order, the appellants filed the present appeals.

Appellant’s Contention: - The appellant contended that Railways are a Government undertaking, being part of the Ministry of Railways and hence, they are not liable to any service tax. Secondly, they have not even recovered the cost of rendering the service, hence, they are not liable to pay any service tax. Thirdly, the they submits that vide notification no. 54/2010-ST dated 21/12/2010 which amended notification 24/2009-ST dated 27/07/2009, exemption is available in respect of management, maintenance or repairs of Railways also and therefore for the period 21/12/2010 onwards, they are not liable to pay any service tax. To support their contention, they relies on the decision of this Tribunal in the case of Maharashtra Industrial Development Corporation vs. CCE, Nashik dated 12/07/2012 reported in = (2012-TIOL-1290-CESTAT-MUM) wherein it was held that Maharashtra Industrial Development Corporation being a public authority, the activities performed by them are not taxable under the Finance Act, 1994 and accordingly, stay has been granted against the dues adjudged in the said case. Therefore, in the instant case also stay is to be granted.

Respondent’s Contention: - The respondent argued that for the levy of service tax, it is immaterial whether the service provider is a Government undertaking or not and the levy applies equally to both Government undertakings as also non-Government undertakings. Therefore, in the absence of any specific exemption notification exempting the activities undertaken in respect of maintenance, management or repairs of Railways sidings, the appellant is liable to pay service tax.

Reasoning of Judgment: - The Hon’ble Tribunal held that under section 65(64) as per "Management, maintenance or repair" means any service provided by:
(i) Any person under a contract or an agreement; or
(ii) A manufacturer or any person authorised by him, in relation to, -
     (a) Management of properties, whether immovable or not;
     (b) Maintenance or repair of properties, whether immovable or not; or
     (c) Maintenance or repair including reconditioning or restoration or servicing of any goods, excluding a motor vehicle.
Further, as per section 65(105)(zzg) taxable services rendered to any person by any person in relation to management, maintenance or repair is leviable to service tax. Prior to 01.05.2006, the taxable service was defined as any service rendered to a customer by any person in relation to management, maintenance or repair. In the instant case, the appellant has entered into contracts with various private Railway sidings owners for the maintenance and repairs of Railway sidings and, therefore, the activity undertaken by the appellant would come within the purview of management, maintenance or repair service and hence, they are rightly liable to pay service tax. Reliance placed by the appellant on the decision of this Tribunal in the case of Maharashtraindustrial Development Corporation cited supra is of no help to the appellant. In that case, the said corporation was collecting a fee fixed by the Government of Maharashtra under the Maharashtra Industrial Development Act, 1961. In other words, what was collected by the said corporation was a statutory fee. It is in the facts of that case, this Tribunal granted interim stay on the ground that the activities performed by a public authority under the provisions of law are not taxable as per the clarification given by the CBEC in Circular no. 89/7/2006 dated 18/12/2006. In the present case, the Railways are not collecting any statutory fee but are collecting service charges for the services rendered and, therefore, the said decision does not appear to be applicable to the facts of the present case. There is also no financial hardship pleaded by the appellant. In this view, they held that the appellant has not made out a prima facie case for complete waiver of dues adjudged against them and accordingly, they direct the appellant to make a pre-deposit of 50% of the service tax adjudged against them within a period of eight weeks and report compliance by 11/02/2013. On such compliance being reported, the balance of service tax, interest and penalties adjudged against the appellant shall stand waived and recovery thereof stayed during the pendency of the appeals.

Decision: - Pre-deposit ordered.

Comment:-The analogy drawn from this case is that service tax is not leviable on the statutory functions performed by the government departments.

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PJ/Case Laws/2012-13/1394

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