Salim Akhtar, MA. L.L.B.
Whether Private Railway Sidings qualify as ‘Railway and Chargeability of Service Tax Thereon?
From 1st July-2012, vide Notification No. 25/2012-ST dated 20.06.12 has exempted services by way of construction, erection, commissioning, or installation of original works pertaining to an airport, port or railways , including monorail or metro.
Prior 1st July-2012, both ‘Commercial or Industrial Construction Service’ as well as ‘Works Contract Service’ were taxable, excluding services provided in respect of roads, airports, railways , transport terminals, bridges, tunnels and dams from the levy of service tax.
In present trend, a large number of business entities for their mega projects are procuring land for setting up their plants or factories as well as for laying railway tracks for developing of their own railway sidings within factory premises and connecting the same from a nearby railway station for ensuring smooth transportation of fuels, raw materials, finished goods or by products etc. Since our government is unable to provide such basic facility to the business entities for smooth transportation, hence they are developing their own railway sidings to get some relief to carry or to send the materials or goods as per the demands, even though it is not an easy task for the business entities due to endless statutory formalities and huge investments.
To develop these private railway sidings, the track and its entire systems are laid by the business entities by their own or through engaging contractors as per Railway’s conditions and specifications. For connectivity of these private railway sidings up to nearby Railway Station, a connecting track work on the land of Indian Railways is done for interlocking of track between Railways and Private Railway sidings. This is the actual interchange point, at where the materials are handed over, loaded in the railway wagons, by the business entities to the Railway Administration for onward transportation. Therefore, these tracks up-to interchange point, are not used for any other traffic, goods or passengers as public utility and are solely used by the business entities for their private purposes only.
Now questions arise:
1. Whether these ‘private railway sidings’ can be considered as ‘Railway’ even though these are not used as public utility for carrying of passengers or goods, except are used exclusively for private purposes by the business entities?
2. Whether Service Tax would not be applicable, for laying of Track, installation of Signals, Control Rooms, Communication Systems etc. for developing of ‘private railway siding’ under category of ‘railway’ in light of Notification No. 25/2012-ST dated 20.06.2012?
So let us try to understand provisions to qualify ‘railway’ in the light of Finance Act-1994 and Indian Railway Act-1989 with the help of below reasoning:
The word ‘Railway’ has not been defined in the Finance Act, 1994, whereas it has been clearly defined under Section-2 of the Indian Railway Act (IRA), 1989:
Sec-2(31) of IRA-1989: ‘Railway’ means a railway, or any portion of a railway, for the PUBLIC carriage of passengers or goods, and includes—
(a): all lands within the fences or other boundary marks indicating the limits of the land appurtenant to a railway;
(b): all lines of rails, sidings, or yards, or branches used for the purposes of, or in connection with, a railway;
(c): all electric traction equipments, power supply and distribution installations used for the purposes of, or in connection with, a railway;
(d): all rolling stock, stations, offices, warehouses, wharves, workshops, manufactories, fixed plant and machinery, roads and streets, running rooms, rest houses, institutes, hospitals, water works and water supply installations, staff dwellings and any other works constructed for the purpose of, or in connection with, railway;
(e): all vehicles which are used on any road for the purposes of traffic of a railway and owned, hired or worked by a railway; and
(f): all ferries, ships, boats and rafts which are used on any canal, river, lake or other navigable inland waters for the purposes of the traffic of a railway and owned, hired or worked by a railway administration, but does not include—
(i) a tramway wholly within a municipal area; and
(ii) lines of rails built in any exhibition ground, fair, park, or any other place solely for the purpose of recreation;”
Further sub-sections (20) & (25) of Section 2 of the Railways Act, 1989 define ‘Government Railway’ and ‘Non-Government Railway’ as,
(20): Government railway- means a ‘railway owned by the Central Government’.
(25): Non-Government railway- means a ‘railway other than a Government railway’.
Thus, there can be two types of ‘railways’, Government and non-Government railways. However, for both of them to qualify as ‘railway’ must be used for the PUBLIC carriage of passengers or goods. So it can be said that Indian Railway is ‘Government Railway’ and METRO is a ‘Non-government Railway’ since both are used for PUBLIC UTILITIES not for any PRIVATE PURPOSES, hence, qualify the word ‘Railway’.
Therefore, based on above reasoning, we do not find any place to qualify the ‘private railway siding’ as ‘railway’ which are exclusively used for private purposes by the business entities for transporting of their own materials or goods within plant or factory premises and also up to interlocking points to handover the materials or goods, loaded in railway wagons, in the custody of Railway Administration for onward transportation. Thus it has not been used for PUBLIC carriage of passenger or goods, hence not qualifies as ‘railway’.
Even, though the private railway sidings are developed or constructed by using Rails as per the specifications laid down by Indian Railways as per Indian Railway Act, 1989, the same does not qualify as ‘railway’, hence, not eligible for exemption provided in the mega notification. It is actually a ‘private material handling siding’ or rather ‘a material handling system’ which is used internally within factory premises for movement of fuels, raw materials and finished goods, exclusively for that plant or factory for which it relates.
Further, as explained in Section 94 of the Railway Act, 1989, which deals with the liability of damage to in transit goods on the owner of the private siding up-to the specified point of interchange of wagons between the siding and the railway administration, states:
“Where goods are required to be loaded at a siding not belonging to a ‘Railway Administration’ for carriage by railway, the railway administration shall not be responsible for any loss, destruction, damage or deterioration of such goods from whatever cause arising, until the wagon containing the goods has been placed at the specified point of interchange of wagons between the siding and the railway administration and a railway servant authorised in this behalf has been informed in writing accordingly by the owner of the siding.”
So it is crystal clear that any movement of goods is done before interchange point between railway and private railway siding would not qualify the services for public utility under ‘railway’ and the same would be considered as the services for private purposes until the goods are not handed over to railway administration at the interchange point.
Please also refer Mumbai CESTAT judgement in case of M/s AFCON INTRUSTRUCTURE LIMITED Versus COMMISSIONER OF CENTRAL EXCISE MUMBAI-II reported in S.T.R. 194 (Tri. Mumbai) 2015 (38) wherein a Para No. 3.3. of the judgement of Hon’ble Delhi High Court in the case of DMRC Versus Municipal Corporation of Delhi reported in 2008 has quoted:
“The word Railway as per the above definition means Railway or any portion thereof, but the same should be used for public carriage of passengers, goods and includes various properties as specified in clauses (a) to (f) therein. The term ‘Railway’, in the first part of the definition clause relies upon the word ‘Railway’ as is understood in normal parlance, with a stipulation that it should be used for the purpose of transportation of public carriage of passengers or goods. The Supreme Court in the case of Shahadara (Delhi) Saharanpur Light Railway Company vs. Municipal Board reported in AIR 1969 SC 513, had agreed with the contention of the appellant therein that the expression ‘Railway’ as is commonly understood means carriage of passengers and goods on iron rails. The term ‘Railway’ as described in Article 366 (20) does not include tramway wholly within the municipal area, line of communication wholly situated in one State and declared by the Parliament by law not to be Railway. The petitioner qualifies and is a Railway within the meaning of Section 2(31) of the 1989 Act. It is engaged in transportation of passengers on rails. It is a public carriage. This factual position is not challenged by the respondent.”
However, based on the above reasoning, it is concluded that to qualify ‘railway’, it has to be engaged in ‘Public carriage of passengers or goods’ as public utility under Railway Administration. If the railway is not used for the said purpose, then it can be considered neither ‘Govt. Railway’ nor ‘Non Govt. Railway’. However the exemption from levy of service tax towards activity for laying Rails and its entire systems for developing a ‘private railway siding’ does not arise at all, since it is nothing but a ‘material handling system’ which is developed according to the needs of a business entities as per the railway specifications.
But all times, it creates disputes between the business entities and the department. If any Service provider does not charge the service tax in his bills for providing services relating to private railway sidings, as if he is providing the services to ‘railway’ as per notification No.25/2012-ST dated 20.06.2012, then the department issues show cause notices to the service provider to recover the service tax with interest and penalty, stating that the private railway siding is not qualifying as ‘railway’, so the exemption would not be available..
Similarly, when the department conducts the audits or make visits to the premises of the business entities (recipients of service), then they raise memos / letters / show cause notices for availing Cenvat credit of Service Tax against laying of tracks and its entire systems like, Rails, Clamps, Fish Plats, Sleepers, Signals, Communication System, Nut and Bolts and loading and unloading systems etc., stating that the private railway siding qualifies as ‘railway’ hence it is exempted from levy of service tax, so Cenvat credit would not be available. Now why the department adopts double standard, because no clear cut guide lines have been defined in the Service Tax Act-1994, for ‘private railway sidings’ whether these are qualifying as ‘railway’ or not, but defined in Railway Act-1989.
Further questions arise:
1. If private railway siding does not qualify as ‘railway’ then why service recipient pays the service tax to the department on charges collected by railways on account of developing of private railway sidings under ‘support services’ in light of Not. No. 30/2012-ST dated 20.06.2012?
2. If the railways being the public utility, then why repair and maintenance services are not exempted relating to services provided or to be provided in relating to ‘railway’?
Let us try to describe the facts in respect of the above; the Indian Railway collects some charges for rendering of services from the business entities in support of laying of the private railway sidings. The details of these charges, collected by Indian Railways, have been provided in the Freight Marketing Policy Circular No. 01 of 2012 issued by the Railway board, Ministry of Railways vide F No. 99/TC(FM)/26/1/Pt.-II dated 30.01.12.
From 1st July-2012, in pursuance of amendments in the Finance Act, 1994 vide Finance Bill, 2012 and Notification No. 30/2012-ST dated 20.06.12, ‘support services’ provided by Government to a business entity are liable to service tax and the liability to deposit the tax would be in the hands of service recipient.
The support services are defined in Section 65B of the Act, describes as:
‘Support services’ means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis’ includes :
A: Taxable Services:
(i) provided or agreed to be provided by an insurance agent to any person carrying on the Insurance business; …… (ii)…………………………………… (iii)…………………………………,
(iv) provided or agreed to be provided by,- (A) an arbitral tribunal, or (B) an individual advocate or a firm of advocates by way of support services, or(C) Government or local authority by way of support services excluding,- (1)renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994, to any business entity located in the taxable territory;
(B) provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory;
2. The extent of service tax payable thereon by the person who provides the service and the person who receives the service for the taxable services specified in the table of the Notification…
As per Section 66D of the Finance Act, 1994 introduced negative list of services comprises of the following Services viz. :
(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-
(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
(iii) transport of goods or passengers; or
(iv) support services , other than services covered under clauses (i) to (iii) above, provided to business entities;
In view of amended provisions, from 1st July-2012, ‘support services’ like infrastructural, operational, administrative, logistic, marketing, advertisement, promotion, construction or works contract, renting of immovable property, security, testing and analysis or any other support services provided by Government to a business entity are liable to pay service tax and the service would be payable by the service recipient.
So, the business entities are receiving services from the Indian Railways towards laying of the private railway sidings. These services are taxable with effect from 1st July-2012 under ‘support services’ provided or to be provided by the Government to the business entities as per Notification No. 30/2012-ST dated 20.06.2012 and the Service Tax is being paid by the recipients, on the amounts paid to the Indian Railways for laying of private railway siding.
Hence, point is to be noted that the service recipients are discharging service tax liabilities under reverse charge mechanism on accounts of services received from Indian Railways (being Government) towards laying of private railway sidings due to inclusion clause of taxable service vide Notification No. 30/2012-ST dated 20.06.2012. So it is again proved that the private railway sidings are not covered under category of ‘railway’, since not exempted from service tax under ‘support services’.
Besides that it has also observed from the provisions available in Service Tax Act-1994 and Notifications that no exemption for payment of service tax is available for repair and maintenance services provided or to be provided on account of ‘railway’ even in mega Notification No. 25/2012-ST provides for exemption to works relating to Government or railways except repair and maintenance.
So it is evident from the above, the private ‘railway sidings’ are not covered under category of ‘railway’, hence taxable and Cenvat credit of Service Tax including Inputs and Capital Goods may be available to the recipient under Cenvat Credit Rules, 2004.
(These are my personal views and are expected from the concerned to clarify the issue)
(Author is Manager (Taxation) With Jindal Steel & Power Limited, Angul ( Odisha))