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Roller Coaster Ride under Rent-a-Cab Service [Submitted by Chandrashekara R., June 29, 2009 Rent a cab service was initially introduced under service tax w.e.f. 16-05-1997, and this service was exempted from payment of service tax from 28-02-1999 till 31-03-2000, later on from 01-04-2000 the above exemption was discontinued and Rent a Cab service was made taxable there after. There were lot of ups and downs in the judicial decisions with respect to liability under Service Tax, the law was not yet fully settled as regards what is the nature of service liable under the service tax, as regard to its scope. The same was discussed below. Let us see some of the important provisions and definitions
under the Rent-a-cab service category as per Finance Act, 1994, As per section 65(20) Cab means (definition provided under the act is an exhaustive in nature)
Provided that the maxicab referred to in sub-clause (ii) or motor vehicle referred to in sub-clause (iii) which is rented for use by any Educational body imparting skill or knowledge or any lesson on any subject or field other than a commercial coaching centre, shall not be included within the meaning of the cab (i.e. profit oriented educational institutions were not exempted and subjected to Service Tax). Following clarifications were made in scope of service from TRU dated 28-02-2007 D.O.F.No.334/1/2007.
When renting of maxicab and any other vehicle (carrying more than 12 passengers) to an educational body is exempted from Service Tax. It seems unsound/or illogical that of taxing the renting of motorcar. There was as important case in respect of the same. In CCE Vs M/s Ratan Melting & Wire Industries (2008), where it was held that, a circular which is contrary to the statutory provisions has really no existence in law. Hence rent-a-cab operator would be eligible for exemption even motor cab is rented to an educational body. Section 65(91), Rent-a-cab scheme operator means any person engaged in the business of renting of cabs. From above definition it is clear that any person even if an individual having only one vehicle and engaged in the course of renting of cab as his business would also be covered under this category (i.e. number of vehicle rented by him is not relevant). And also it is evident that, scope of service is immaterial about the ownership, taxability would arise under this category if any person rents a cab, even though he is not the actual owner. But as per above conflict would arise, if a rent a cab scheme operator rents a vehicle from an individual on one occasion for rent for specified period. As to whether an individual would also be liable to service tax, even though renting is not in the nature of his regular business (whether single transaction would be termed as engaged in business). This seems to be illogical. Since a single contract entered by an individual, which is not in the nature of his regular business cannot be considered as his business for the purpose of levy and subjected to Service Tax. However the of rent-a-cab scheme operator cannot disregard as to his liability and shall be subjected to Service Tax. When one Rent a cab operator rents his cabs to another Rent-a-cab operator both of them would be liable under the Service Tax. The issue has been clarified in the Circular No. 96/07/2007 ST dated 23-08-07 as service is taxable even if it has been provided on subcontract basis. It can be argued that whether Rent-a-cab scheme operator would be liable to pay service tax, if the service provider providing service on Km basis, per trip basis or on time or may be on distance, such as Viz Meru taxi, City taxi etc. Since the same would be treated as transportation services and not as Rent-a-cab service. The view was also supported by the decision held in the case of R. S. Travels vs. CCE, Meerut (2008) where appellant was engaged in providing the vehicle along with driver on per Km basis and it was held that such service is out purview of Rent a cab service. The view was also supported in the cases of Kuldip Singh Gill v CCE (2008) and Surya Tours & Travels v CCE (2009) where vehicles were provided to companies for transport of employees or children of employees on per trip basis were held as provision of transport services and not as Rent-a-cab service. As we know that running of vehicle on Km basis is covered under transportation services and not under Rent-a-cab service. Let us see the important points to be considered to distinguish between rent a cab service and transportation service,
As we already know that, renting of a cab for hire or reward is taxable under this category. The statute must define the word Rent, Hire or Reward. Also clear distinguish required between hire of a cab which also transfers the ownership and risk to the hirer and that of transfer of cab without transfer of any ownership. As per Central Sales Act 1956 Section 2(g)(iv) defines “Sale” as transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Which means, as per the sale definition under CST Act 1956 transfer of goods were subjected Sales Tax, as it is considered as deemed sale of goods. Hence it needs to be clearly distinguished as to how the liability under the respective law is determined, what is the line of difference for determination of duty under respective law. Since the service tax and sales tax cannot co-exist at the same time. Based on above discussion the service provider can follow any of the below options, or he may evolve his own method for coping with law.
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