2016 (10) TMI 1188 - AT - Service Tax

Rent-a-cab scheme operator service - business of renting of a cab - Revenue says that with the amendment of the definition of cab with effect from 01.6.2007 any motor vehicle constructed or adapted to carry more than twelve passengers are also covered under the taxable service of Rent-a-Cab Scheme Operator Services and the corresponding taxable service means any service provided or to be provided to any person, by a rent-a-cab scheme operator in relation to the renting of a cab. Wherever these appellants have provided their buses on individual contract basis - Whether such services could be classified as rent-a-cab service or not? Held that - it is to be noted that in the year 2012 on July 01, the concept of negative list was introduced in respect of levy of Service Tax and Section 66D of the Finance Act, 1994 came into force by its insertion in the said Act. An exemption Notification No. 25/2012-S.T. dated 20.6.2012 was issued and further, the Finance Act, 2012 inserted Section 66B in the Finance Act, 1994 which made clear that the service covered under the negative list (given in Section 66D) are not to be taxed. However, we are not considering the impact of these provisions as the period involved in the cases in hand is prior to 01.7.2012, the day when the concept of negative list was introduced. Rent-a-cab scheme operator has to be a person who is engaged in the business of renting of cab - From the facts on record, it is clear that essential business of the appellants is plying the buses from one place to the other place(s), which are fixed in advance on regular basis - These appellants only on occasional basis which one of the appellants say is only three per cent (3%) of their total operation rent out their buses on specific demands from specific customers - service would not come under the expression rent-a-cab scheme operation . Extended period of limitation - Penalty - Held that - the issue is highly debatable and arguable and therefore the invocation of extended period can definitely be not sustainable - penalty also set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the appellants' operations fall under the definition of 'rent-a-cab scheme operator' as per Section 65(91) of the Finance Act, 1994.
2. Whether the appellants' occasional renting of buses constitutes a taxable service under Section 65(105)(o) of the Finance Act, 1994.
3. Applicability of penalties and interest on the appellants for the alleged non-payment of service tax.

Detailed Analysis:

Issue 1: Definition of 'Rent-a-Cab Scheme Operator'

The primary issue is whether the appellants, M/s Karnataka State Road Transport Corporation (KSRTC) and M/s North West Karnataka Road Transport Corporation (NWKRTC), fall under the definition of 'rent-a-cab scheme operator' as per Section 65(91) of the Finance Act, 1994. The appellants argue that their main activity is transporting passengers as stage carriage as mandated by the Karnataka State Government. They occasionally provide buses under casual contracts, which constitutes less than 3% of their operations. The appellants contend that they cannot be considered as engaged in the business of renting buses, as their primary activity is to provide bus transport facilities to citizens. The Tribunal found that the appellants' essential business is plying buses on regular routes, and only occasionally renting out buses on specific demands does not make them 'rent-a-cab scheme operators.' The Tribunal referenced the case of Bangalore Metropolitan Transport Corporation (BMTC) Vs. CST, Bangalore, which was upheld by the Supreme Court, to support this view.

Issue 2: Taxable Service under Section 65(105)(o)

The Revenue issued service tax demands on the ground that the appellants' operations fall under 'rent-a-cab scheme operator services' as per the amended definition of 'cab' effective from 01.06.2007. The appellants argue that their occasional renting of buses does not meet the criteria of 'renting of a cab' as defined under Section 65(105)(o) of the Finance Act, 1994. The Tribunal noted that the definition of 'taxable service' requires the service to be provided by a 'rent-a-cab scheme operator' in relation to renting a cab. The Tribunal concluded that the appellants' occasional renting of buses on a kilometer basis does not constitute 'renting of a cab' as there is no fixed monthly rent or minimum number of kilometers, which are typical characteristics of 'rent-a-cab' services. The Tribunal reiterated the decision in the BMTC case, where it was held that BMTC's primary activity of providing bus transport services excludes it from being considered as engaged in the business of renting cabs.

Issue 3: Applicability of Penalties and Interest

The lower revenue authorities confirmed the demands of service tax along with interest and imposed penalties on the appellants. The appellants argued that they are not liable for penalties as they are not engaged in the business of renting cabs. The Tribunal found that the issue is highly debatable and arguable, and therefore, the invocation of the extended period for demand and imposition of penalties is not sustainable. The Tribunal held that the appellants are not liable for penalties under various sections of the Finance Act, 1994, as their activities do not fall under the taxable service of 'rent-a-cab scheme operator services.'

Conclusion:

Based on the above discussions and following the ratio of the decision in the BMTC case, the Tribunal allowed all the appeals filed by KSRTC and NWKRTC. The Tribunal concluded that the appellants' occasional renting of buses does not constitute 'rent-a-cab' services, and therefore, they are not liable for service tax, interest, and penalties. The appeals were allowed with consequential relief, if any.