2014 (10) TMI 816 - HC - Service Tax

Rent a cab scheme - whether the person engaged in the business of renting cabs, irrespective of the number of vehicles held by him (even if he does not own and has instead rented even a single cab) is not covered under the definition of Rent-a-Cab operator scheme, and not liable to pay Service Tax - Held that - Unless there is renting of cabs, there is no question of further enquiring as to the services, which may be rendered therein. In other words, any service, which may be rendered and which does not relate to renting of cabs, would be irrelevant for our consideration. When we consider the matter in the said light, we have no doubt in our minds that the Tribunal has, in this case, correctly propounded the principle that, unless the control of the vehicle is made over to the hirer and he is given possession for howsoever short a period, which the contract contemplates, to deal with the vehicle, no doubt subject to the other terms of the contract; there would be no renting. Under the rent-a-cab scheme, the hirer is endowed with the freedom to take the vehicle, wherever he wishes, and he is only obliged to keep the holder of the licence informed of his movements from time to time. When a person chooses to hire a car, which is offered on the strength of a permit issued by the Motor Vehicles Department, then the owner of the vehicle, who may or may not be the driver, will offer his service while retaining the control and possession of the vehicle with himself. The customer is merely enabled to make use of the vehicle by travelling in the vehicle. In the case of a passenger, he is expected to pay the metered charges, which is usually collected on the basis of the number of kilometers travelled. These are all matters, which are regulated by the Government. Unlike the said scenario, in the case of a rent-a-cab scheme, as is clear from the very fundamental principle underlying the scheme, it is to give the hirer the freedom to use the vehicle as he pleases, which, undoubtedly, implies that he must have possession and control over the vehicle. This is the fundamental distinction between rent-a-cab and a pure case of hiring Though both, rent and hire, may, in a different context, have the same connotation; in the context of rent-a-cab scheme and hiring, we are of the view that they signify two different transactions. What the lawgiver has chosen fit to tax by way of imposition of service tax is only transaction relating to business of renting of cabs. It is also pertinent to bear in mind that, in the case of hiring, the hirer may refuse to provide the service to the prospective customer. - when the lawgiver introduced this new source of taxation, it must be treated as having been aware of the distinct concept of renting a cab for which there is provision in the Central Legislation, namely, Section 75 of the Motor Vehicles Act and also a scheme stood framed as early as in 1989. We are, therefore, of the view that, unless there is control, which is passed to the hirer under the rent-a-cab scheme, there cannot be a taxable transaction under Section 65(105)(o), read with Section 65(91) of the Service Tax Act. Decision of Punjab & Haryana High Court in Commissioner of Central Excise, Chandigarh Versus M/s Kuldeep Singh Gill 2010 (4) TMI 283 - PUNJAB & HARYANA HIGH COURT distinguished - Decided against Revenue.

Summary

Issues Involved:
1. Whether the requirement of operators to be registered under Section 75 of the Motor Vehicles Act, 1988, to qualify as 'Rent-a-Cab' operators was dispensed with by the Finance Act, 1998.
2. Whether individuals engaged in the business of renting cabs, irrespective of the number of vehicles held, are liable to pay Service Tax under the Finance Act, 1994.
3. Distinction between hiring and renting of cabs for the purpose of Service Tax liability.

Issue-wise Detailed Analysis:

1. Requirement of Registration Under Section 75 of the Motor Vehicles Act, 1988:
The court examined the substantial question of law regarding the dispensation of the requirement for operators to be registered under Section 75 of the Motor Vehicles Act, 1988, to qualify as 'Rent-a-Cab' operators. The Finance Act, 1998, amended the Finance Act, 1994, removing the necessity for such registration. The court observed that the Tribunal had taken the view that for imposing service tax under Section 65(105)(o) of the Service Tax Act, the hirer must have possession of the vehicle. The Tribunal also noted that the respondents had informed the Department about their activities in 2000, and show-cause notices were issued beyond the normal period of limitation.

2. Liability to Pay Service Tax:
The proceedings against the respondents were based on the allegation that they were operating rent-a-cab schemes without paying the due service tax. The Tribunal distinguished between a mere contract of hire and a contract of renting of cabs, emphasizing that under the Motor Vehicles Act, 1988, Section 75 provides for a rent-a-cab scheme where possession and control of the vehicle are transferred to the hirer. The Tribunal concluded that without such possession and control, the rent-a-cab scheme would not be applicable, and thus, service tax would not be leviable.

3. Distinction Between Hiring and Renting of Cabs:
The court elaborated on the distinction between hiring and renting of cabs. The Tribunal's reasoning was upheld, which stated that renting involves transferring possession and control of the vehicle to the hirer, allowing them to use the vehicle as their own, subject to the terms of the contract. In contrast, hiring involves the owner retaining control and possession, merely providing the service of transport. The court referred to Section 75 of the Motor Vehicles Act and the Rent A Cab Scheme, 1989, which supports this distinction.

Supporting Case Law and Arguments:
The court reviewed several judgments and arguments presented by the learned counsel for the revenue and the respondents. Notably, it considered the Madras High Court's decision in Commissioner of Income Tax vs. Madan and Company, which dealt with higher depreciation for vehicles used in hiring, and the Karnataka High Court's decision in Smt. L. V. Sankeshwar vs. Superintendent of Central Excise, which distinguished between renting and hiring of vehicles. The court found that these cases did not directly address the issue at hand and reaffirmed the Tribunal's distinction between renting and hiring.

Conclusion:
The court concluded that the Tribunal correctly interpreted the law, emphasizing that the business of renting cabs involves transferring possession and control to the hirer. Consequently, the appeals were dismissed, and the question of law was answered against the appellant, confirming that without the element of renting as defined, service tax cannot be levied under Section 65(105)(o) read with Section 65(91) of the Service Tax Act.