MUMBAI, APRIL 09, 2013: THE appellant, a division of the Indian Railways, are inter alia engaged in the activities of Renting of Immovable Property Service, Sale of place or time for Advertisement Service and Mandap Keeper Service.

Since they did not discharge their Service Tax liability, a SCN dated 19.4.2010 along with addendum dated 20.7.2010 demanding Service Tax of Rs.1,28,22,481/- was issued and the same was adjudicated by the CCE, Nagpur on 13.12.2010 confirming the tax demand and imposing penalties and interest.

Before the CESTAT, the appellant while seeking Stay submitted –

+ The Railways is a Government department and, therefore, no tax can be imposed on Railways as per the Constitution.

+ Since the earnings of the Railways go to the Consolidated Fund of India, the tax, if any, has also got to be paid from the same account and, therefore, it is only an adjustment from one amount to another as tax proceeds also go the consolidated fund.

+ The show-cause notice has invoked extended period of time for confirmation of demand and the Railway being part of the Government, intention to evade tax cannot be alleged against the Government and, therefore, bulk of demand is barred by limitation of time.

+ Railway being a government department, the question of providing any security for the revenue would not arise.

+ As the word “person” has been defined under Section 65B (37) of Chapter V to the Finance Act, 2012 so as to include government and prior to this amendment, there was no definition of a “person” and, therefore, Railways are not liable to pay Service Tax.

The Revenue representative submitted that Indian Railways is an organization working on commercial basis and, therefore, they are liable to pay Service Tax; the ‘person' referred to in the law is a juridical person and the juridical person includes within its scope “Government” also. Since the Railways have suppressed information relating to the activities undertaken by them the demands have been correctly made invoking the extended period of time. Inasmuch as the appellant should be put to terms submitted the representative.

The Bench observed –

“5.1 The issue relating to payment of Indirect Taxes by or on behalf of the Government was considered by a Bench comprising of nine judges of the Hon'ble Supreme Court on a reference made by the President of India in the context of Section 20 of the Sea Customs Act, 1876 reported in 1964 (3) SCR 787….

By the majority decision, it was held as follows:-

“35. But it is contended on behalf of the States that in the scheme of our Constitution no distinction has been made between direct and indirect tax and therefore this distinction is not relevant to the present controversy. It is true that no such express distinction has been made under our Constitution, even so taxes in the shape of duties of customs (including export duties) and excise, particularly with a view to regulating trade and commerce in so far as such matters are within the competence of Parliament and are covered by various entries in List I to which reference has already been made, cannot be called taxes on property; they are imposts with reference to the movement of property by way of import or export or with reference to production or manufacture of goods. Therefore, even though our Constitution does not make a clear distinction between direct and indirect taxes, there is no doubt that the exemption provided in Article 289(1) from Union taxation taxes on property and not to indirect taxes like duties of customs and excise which are in their essence trading taxes and not taxes on property.

36………..

37…………………..

38. For the reasons given above, it must be held that the immunity granted to the States in respect of Union taxation does not extended to duties of customs including export duties or duties of excise. The answer to the three questions referred to us must therefore, be in the negative.”

5.2 From the above decision of the Hon'ble Supreme Court, it is clear that even the Government is liable to pay indirect taxes for the activities undertaken by it if the activity undertaken comes within the scope of taxable event as defined in the law. Even though the above judgment was delivered in the context of union excise duty and customs duty, the ratio of the decision would apply with equal force in respect of service Tax also, which is also an indirect tax. Accordingly, it has to be held that the Indian Railways though part of the Union Government is liable to pay Service Tax in case the activities undertaken by them fall within the definition of taxable services and we hold accordingly.

5.3 As regards the second contention of the appellant that Chapter V of the Finance Act, 1994 does not define the ‘person' liable to pay Service Tax and same is defined only in Rule 2(d) of the Service Tax Rules, 1994, this argument is also not correct because as per Section 68(1) of the Finance Act, 1994, every person providing taxable service to an person shall pay Service Tax at the rate specified under Section 66 in such manner and within such period as may be prescribed. Therefore it is the service provider who is liable to pay Service Tax and only in specified situations as provided for sub-section (2) of Section 68, a person other than the service provider notified by the government is liable to pay Service Tax. Even if, in a case, the person is notified under the rules as the person liable to pay Service Tax, that by itself not take away the responsibility on the person from payment of Service Tax. The Constitution Bench of the Apex Court in the case of Orient Weaving Mills (P) Ltd. Vs. Union of India – 1978 (2) ELT J 311 (SC) - 2002-TIOL-315-SC-CX held in that context of interpreting the Central Excise Act that “by virtue of Section 38 of the Act, all rules made and notifications issued by the Central Government, as aforesaid, are required to be published in the Official Gazette, and thereupon those rules and notifications ‘shall have effect as if enacted in this Act'. Thus, it is manifest that the notifications and the rule impugned in this case have been incorporated into the Act itself, and have become part of the taxing statute.” The ratio of the said decision would apply with equal force in respect of Service Tax Rules, 1994 as the same has been made under the provisions of Section 94 of the Finance Act, 1994 for the purpose of carrying out the provisions of the Chapter V of Finance Act, 1994 and has been notified by the Central Government in the Official Gazette. This rule has also been placed before the Parliament and has been approved by the Parliament. Therefore, it has the same force as law. Therefore, the contention in this regard made by the appellant is not sustainable.”

On the question of the demand being hit by limitation, the Bench observed as under –

“5.4 As regards the point raised with regard to invoking the extended period of time for confirmation of demand, there is some merit in this argument. Normally, it cannot be presumed that the government or government departments indulge in evasion of taxes either by suppression or by willful mis-statement. Further since the question of time bar is both a question of law as well as a question of fact, this issue can be considered at the time of final disposal of the appeal.

5.5 There is no dispute with regard to the fact that the activity undertaken in the instant case by the appellant falls within the definition of renting of immovable property, sale of space or time for advertisement service or mandap keeper services as defined under Section 65(19)(a), 65(105)(zzzm) and Section 65(105)(m) of the Finance Act, 1994 respectively. Therefore, we are prima facie of the view that the appellant M/s Central Railways, are liable to discharge Service Tax liability on the services rendered by them. Since the demand in this case pertains to both the normal period of limitation as also the extended period of limitation, the Service Tax liability would be definitely sustainable in respect of the demands made within the normal period of limitation. Since the total demand of Service Tax is Rs.1.28 crores for a period of five years, the demand for the normal period would approximately of the order of Rs.25 lakhs.”

In fine, the Bench directed the appellant Central Railway to make a pre-deposit of Rs.25 lakhs and report compliance.

(See 2013-TIOL-575-CESTAT-MUM)