2015 (1) TMI 282 - AT - Service Tax

Rent a cab service - Joint agreement - private entrepreneurs supply the buses under hire scheme for operation on the identified intra and inter-state route to Andhra Pradesh State Road Transport Corporation (APSRTC) - Restriction on hire - Buses with stage carriage permit cannot be hired - Interpretation of definition of rent a cab service - Imposition of penalty - Held that - appellants who provide the buses are paid on the basis of number of kilometers run per day in the permitted route as per the stage carriage system. Even if the bus runs empty and no passenger travels, APSRTC is bound to pay the amount agreed upon between the two parties per kilometer. Similarly even if the bus runs with double the capacity of passengers and APSRTC makes huge profit, the appellants do not get any benefit whatsoever. In fact the agreement provides that even in case the conductor is not provided by the APSRTC, the driver is required to collect the fare from the passengers but the learned counsel for the appellants did not show any clause where APSRTC is required to make any payment for absence of the conductor. Therefore whatever be the situation, the appellants get only the payment agreed upon per kilometer and nothing more. The nature of agreement here is very very clear that this is not a joint operation. In fact the agreement is one sided. Para 11 (i) provides that in case of any dispute or disagreement between the owner and the officers of the Corporation with regard to the interpretation of the terms and conditions of this agreement, penalties or fines, amounts due, the decision of the Regional Manager of the Corporation shall be final. Here the person who is taking the vehicle determines the dispute between the two parties also. We are unable to understand how this can be considered as joint operation. In this case if the contract between APSRTC and the appellants was illegal and contrary to law, it was for the authorities who enforce Motor Vehicles Act 1988 to take action and ensure that the stage carriage permit issued to the appellants is withdrawn and appellants are visited with penalty, if any, imposable under the law. Apparently State Transport Authorities have not taken any such action. It is not for us to examine this aspect. Our examination has to be limited to examine the facts of case and agreement to arrive at the nature of transaction between the parties to see whether the transaction is covered by the definition of service or not. In fact the agreement itself provides that APSRTC emblem would be embossed on the vehicle. Hiring or renting of cab should be understood to mean that a customer is merely enabled to make use of the vehicle by traveling in the vehicle for the periods provided in the agreement. In fact the agreement entered into between the appellants and the APSRTC is quite clear that APSRTC is hiring the vehicles which have stage carriage permits in the routes specified and they are required to run according to the timings specified by APSRTC. In these cases the intention of hiring the buses itself is to run them as stage carriages in terms of the agreement. After renting or hiring a cab, what should be done with them and how to use them is covered by the terms of the agreement and that is clearly available in the agreements. So long as the agreement provides for utilization of the rented or hired vehicle for the purpose for which it is being used and both the parties understand it as hiring, we cannot import any other meaning from elsewhere. The submission that meaning of hiring or renting is mere enablement of the customer for traveling in the vehicle only, in our opinion, does not emerge either from the agreement or from the law. Difference between hiring and renting - Held that - law makers for the purpose of levy of service tax did not contemplate application of rent-a-cab scheme as envisaged in Motor Vehicles Act for the purpose of levy of service tax. - Where a definition is exclusively meant for motor vehicles which can be hired or rented, the definition itself provides for it. Therefore when words like maxi cab and motor cab are used it means it is applicable only to vehicles which are meant for hire or reward. - even under Motor Vehicles Act legislative intention is that rent and hire or reward are interchangeable. - By adding maxi cab and motor vehicles with capacity to carry more than 12 passengers, Finance Act 1994 clearly deviates from the Motor Vehicles Act which makes rent-a-cab scheme applicable only to motor cab and motor cycles and does not even cover maxi cabs leave alone motor vehicles equivalent of omnibuses. - Decided against the assessee. Decision of High Court of Uttarakhand in the case of Sachin Malhotra and others 2014 (10) TMI 816 - UTTARAKHAND HIGH COURT - Held that - Hon ble High Court was considering the issue for the period prior to 1/6/2007. As mentioned earlier, the definition was amended to include motor vehicles which can carry more than 12 passengers and which cannot be called as motor cab and maxi cab after 1/6/2007. - Therefore it would not be correct to apply the decision of the Hon ble High Court to the present case. - Decided against the assessee. Demand of service tax confirmed for the period 1/6/2007 onwards - levy of penalty waived - Matter remanded back for quantification - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Joint Operation
2. Buses with Stage Carriage Permit Cannot Be Hired
3. Limitations for the Hirer
4. Difference Between Contract Carriage and Stage Carriage
5. Effect of Non-Transferability Clause in Respect of Stage Carriage Permits
6. Difference Between Hiring and Renting
7. Decision of High Court
8. Other Decisions
9. Purpose Mentioned in the Registration Certificate
10. Extended Time
11. Representation of APSRTC to the Government on the Issue
12. Request for Treatment of Consideration as Cum Tax Receipt
13. Request for Abatement
14. Penalty
15. Period of Demand
16. Remand

Detailed Analysis:

1. Joint Operation:
The appellants argued that their activity does not amount to renting of cabs. They held a stage carriage permit and operated under the Motor Vehicles Act 1988, indicating joint operation with APSRTC. The Tribunal found that the agreement resembled a rental arrangement rather than joint operation, as APSRTC paid per kilometer regardless of passenger count, similar to renting shops or hotels.

2. Buses with Stage Carriage Permit Cannot Be Hired:
The appellants claimed that stage carriage permit holders cannot legally hire out their vehicles. The Tribunal noted that if the agreement was illegal, it was for the Motor Vehicles Act authorities to act. The agreement indicated hiring, as evidenced by terms like "hired" and the tender document's heading.

3. Limitations for the Hirer:
The Tribunal rejected the argument that hiring or renting should only enable customer travel. The agreement clearly indicated APSRTC's control over the buses, including route and fare collection, aligning with the hiring definition.

4. Difference Between Contract Carriage and Stage Carriage:
The Tribunal did not find it necessary to delve into the difference, as they concluded that stage carriage permits could be rented/hired in the absence of specific prohibitions.

5. Effect of Non-Transferability Clause in Respect of Stage Carriage Permits:
The appellants argued that permits are non-transferable. The Tribunal noted that the agreement ensured compliance with the Motor Vehicles Act, with APSRTC taking responsibility for fines and penalties, indicating no violation of the Act.

6. Difference Between Hiring and Renting:
The Tribunal examined definitions and concluded that the Finance Act 1994 did not intend to apply the Motor Vehicles Act's rent-a-cab scheme for service tax purposes. The terms "rent" and "hire" were used interchangeably, and the inclusion of motor vehicles carrying more than 12 passengers post-2007 further deviated from the Motor Vehicles Act.

7. Decision of High Court:
The Tribunal acknowledged the Uttarakhand High Court's decision in Sachin Malhotra but differentiated it based on the agreement's specifics. They noted APSRTC's control over the vehicles, aligning with the renting definition.

8. Other Decisions:
The Tribunal considered other decisions, including the UP State Road Transport Corporation case, but found them less relevant. They aligned with the Board's 2007 clarification that renting of buses post-2007 was taxable.

9. Purpose Mentioned in the Registration Certificate:
The Tribunal dismissed the argument that registration certificate purposes affected the hiring nature, noting APSRTC's responsibility for fines and penalties.

10. Extended Time:
The Tribunal upheld the extended period for demand, noting the clear hiring nature of the agreements and the lack of bona fide belief for non-payment of tax.

11. Representation of APSRTC to the Government on the Issue:
The Tribunal did not consider APSRTC's representation to the government, focusing on the agreement's terms.

12. Request for Treatment of Consideration as Cum Tax Receipt:
The Tribunal accepted the request to treat the consideration as cum tax receipt for re-quantification.

13. Request for Abatement:
The Tribunal allowed the original authority to consider abatement eligibility during re-quantification.

14. Penalty:
The Tribunal invoked Section 80 of the Finance Act 1994 to set aside penalties, considering the reasonable cause for non-payment of service tax.

15. Period of Demand:
The Tribunal clarified that their conclusions applied to the period post-1/6/2007, following the definition amendment.

16. Remand:
The Tribunal remanded the cases for re-quantification, considering cum tax treatment and abatement eligibility, and directed the original authority to adjudicate afresh with reasonable opportunity for the appellants.

Conclusion:
The Tribunal set aside the impugned orders and remanded the matters for fresh adjudication, emphasizing the need for re-quantification and consideration of abatement eligibility. The penalties were set aside, and the Tribunal's conclusions were limited to the period post-1/6/2007.