Case nº Ruling No. AAR/ ST-1/03/2011 in Application No. AAR/ST-1/5/2010 of Authority for Advance Rulings, April 08, 2011 (case RITES Limited Vs Commissioner of Central Excise and Service Tax (LTU))

PresidentP.K. Balasubramanyan, J. (Chairman), J.K. Batra and J. Khosla, Members
Resolution DateApril 08, 2011


P.K. Balasubramanyan, J. (Chairman)

  1. This is an application by a Public Sector Undertaking under the Ministry of Railways under Section 96 C of Chapter v. of the Finance Act, 1994. According to the applicant, it provides consultancy services in various facets of transportation like Railways, Highways, Airports, Urban transport, Ropeways etc. in India and abroad. It also provides services of third party inspection, project management and construction supervision. Since it is in the business of providing consultancy services it is being approached for the leasing of locomotives, coaches and wagons in India. It is also exporting and leasing locomotives and rolling stock abroad.

  2. It has approached this Authority for Advance Ruling on the question sought to be raised by it since it proposes to enter into a new business and wants to seek a ruling regarding its liability to pay service tax, if any, on that business. Since there is serious objection on the part of the Commissioner of Service Tax, on the ground that the claim is vague, we set out the activity proposed to be undertaken by the applicant as disclosed in its application.

  3. While indicating its interpretation of law in Annexure II to the application, the applicant has stated that it proposes to operate on dry lease of its locomotives, coaches and wagons etc. and dry lease is a leasing arrangement of equipment for definite periods with obligation on the lessee to return the leased article on the expiry of the term and pay rent as agreed to during the term of the agreement. This should not be considered a transaction that attracts liability for service-tax. In that context, the applicant has sought a ruling on whether service-tax is leviable while

    (i) operating on dry lease,

    (ii) operating on dry lease in addition to repairs and maintenance of the leased stock,

    (iii) undertaking only repair and maintenance services for the leased stock or

    (iv) entering into two separate contracts with the same client; one for dry lease operating and the other for repair and maintenance.

  4. While admitting the application for ruling, this Authority formulated the above questions. We may observe that at the hearing, no claim was raised by the applicant regarding question Nos. (ii), (iii) and (iv) and it was acknowledged that a contract for repair and maintenance would attract service-tax, going by the definition of taxable service in Clauses (105)(zzg) or (105)(zzzzj) of Section 65 of the Act. The only ruling that was really sought for was regarding the first question as to whether it was eligible to service-tax if it undertakes the activity of operating on dry lease of its locomotives, coaches and wagons etc. The department mainly relied on Clause (105)(zm) of Section 65 read with the definition of the banking and financial services in Clause (12) of the said Section of the Act to meet the claim and the arguments surrounded the interpretation of that provision.

  5. Considering that the Ruling turns on the interpretation of Section 65(12) of the Act, we think it proper to set down the said provision there under:

  6. Definitions

    In this Chapter, unless the context otherwise requires,

    (1) to(11) xx xx xx xx xx xx

    (12)"banking and other financial services" means -

    (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern namely:

    (i) financial leasing services including equipment leasing and hire-purchase; Explanation: For the purposes of this item, "financial leasing" means a lease transaction where -

    (i) contract for lease is entered into between two parties for leasing of a specific asset;

    (ii) such contract is for use an occupation of the asset by the lessee;

    (iii) the lease...

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