Substantive tax exemptions for railway maintenance services cannot be denied on procedural grounds, and services rendered as a sub-contractor to a foreign entity qualify as an export of service under the Export of Service Rules, 2005, provided consideration is received in convertible foreign exchange.

Per Mr. VASA SESHAGIRI RAO

The present appeal is directed against Order-in Appeal No. 118/2017(CXA-I) dated 09.05.2017 passed by the Commissioner (Appeals-I), whereby Order-in-Original No. 13/2016-ST dated 20.7.2016 confirming demand of service tax amounting to Rs. 16,36,718 along with interest and equal penalty under the Finance Act, 1994 for the period 2010 -2011 to 2011-12 has been upheld.

1.2 M/s. Faiveley Transport Rail Technologies, Hosur (hereinafter referred to as “the Appellant”) is engaged in manufacture and provision of services including maintenance and consultancy. During 2010–12, the Appellant rendered services to South Western Railway and also executed services as a sub-contractor under a contract involving its foreign affiliate in connection with the DAMEL project. Exemption under Notification No. 24/2009-ST was claimed for the domestic services, while the DAMEL-related services were claimed as export on the ground that invoices were raised in foreign currency and consideration was received in convertible foreign exchange. A Show Cause Notice dated 17.04.2015 proposed demand of service tax, along with interest and penalty, which was confirmed by Order-in Original and partly allowed by the Commissioner (Appeals) vide Order-in-Appeal dated 09.05.2017 after due process of Law.

2. Aggrieved by the portion of the Order-in-Appeal adverse to them, the Appellant has filed the present appeal before this Tribunal.

3. The Ld. Advocate Mr. Karthick Sundaram appeared on behalf of the Appellant. The Ld. Authorized Representative Ms. Anandalakshmi Ganeshram appeared for the Revenue.

4. The Ld. Counsel for the Appellant submitted that: -

i. the services rendered to South Western Railway are squarely covered under “management, maintenance or repair” of railways and are fully exempt under Notification No. 24/2009-ST as amended. It was argued that the agreements, invoices and scope of work clearly demonstrate that the services relate to maintenance of railway assets.

ii. It was further contended that denial of exemption on procedural grounds such as invoice format or non-mention of registration number is unsustainable, relying on Auro Laboratories Ltd. v. CCE [2016 (344) ELT 391 (Tri. -Chennai)], wherein it was held that substantive benefit cannot be denied for procedural lapses.

iii. With respect to export of services, it was submitted that services provided to overseas entity were received in convertible foreign exchange and satisfy conditions under Export of Services Rules, 2005. Reliance was placed on Paul Merchants Ltd. v. CCE [2013 (29) STR 257 (Tri.-Del.)] and Vodafone Essar Cellular Ltd. v. CCE [2025 (33) Centax 152 (SC)].

iv. On limitation, it is argued that all transactions were recorded in books and returns, and extended period cannot be invoked, relying on Cosmic Dye Chemical, Pushpam Pharmaceuticals, and Uniflex Cables Ltd.

5.1 The Ld. Authorized Representative submitted that the Appellant wrongly classified services and availed exemption. It was contended that invoices did not satisfy statutory requirements and the Appellant failed to produce quantification of exempted services.

5.2 It was further argued that services rendered include consultancy elements and therefore are not eligible for exemption. The Department relied on findings in OIO that services were classified under “Management Consultancy Service” and exemption was wrongly availed.

6. We have carefully heard the submissions advanced by both sides, examined the appeal records in detail, and considered the statutory provisions and the case laws cited.

7. Upon consideration the following questions arise.

i. Eligibility to Exemption under Notification No. 24/2009-ST and Taxability of Services Rendered under Different Contracts.

ii. Whether the de