2026-VIL-1340-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Supply of tangible goods for use service - Liberalized Wagon Investment Scheme - Investment in railway wagons and freight concession - Appellant procured privately owned railway wagons under LWIS Scheme - Department entertained view that by permitting Railways to attach wagons to railway engines appellant supplied tangible goods for use to Railways and freight concession received represented consideration for taxable service - Whether the appellant can be said to have rendered any taxable service to the Railways merely because it invested in railway wagons under LWIS and received freight concession - HELD - Appellant procured wagons entirely at own cost only for facilitating transportation of own goods. Railways neither hired wagons for independent commercial exploitation nor acquired unrestricted right to use them - Wagons remained dedicated to appellant's traffic and could not be deployed by Railways for third-party transportation except in accordance with scheme terms - The Railways merely attached the appellant’s wagons to their locomotives and transported the appellant’s goods on payment of freight. Therefore, the actual transportation service admittedly flowed from the Railways to the appellant. The appellant remained the recipient of transportation service and not the provider of any service - The freight concession granted under the scheme is only an incentive intended to encourage private investment in wagon capacity and such concession merely reduces the freight otherwise payable by the appellant. A reduction in price or grant of rebate under policy cannot automatically assume the character of consideration for a taxable service unless there exists an independent service transaction supported by reciprocal obligations - Department's attempt to split one composite commercial element into two independent transactions viz. transportation service by Railways and supply of wagons by appellant not sustainable - Agreement when read as whole discloses only one commercial objective viz. transportation of appellant's own goods through wagons procured under policy incentive scheme – The operation control exercised by Railways while transporting appellant's goods does not convert transportation contract into contract of hiring of wagons – The appellant has not rendered any taxable service to Indian Railways under LWIS – The impugned orders confirmed demand of service tax interest and penalties are not sustainable in law and set aside – The appeals are allowed
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