2016 (1) TMI 25 - AAR - Service Tax

Levy of service tax on the proposed car lease scheme (of providing vehicles to employees) under Section 66B of the Finance Act, 1994 - applicant is an employer and the applicant is providing some service to its employees by giving an option to all such employees to avail of a car. - Held that - it is making available a car for the use of the employees during the term of their employment for which it is charging only the car rent which the applicant is paying to the car leasing company from which it has hired the car. It is not charging a rupee more or a rupee less. There is also an option given to the employee to ultimately purchase the car at the end of his employment and the employee would also be under the obligation to purchase the car at the rate which is a written down value. That by itself, can not be an exception. What is relevant is, as to whether a service is being provided by the applicant to its employees which service is in the course of or in relation to his employment. There can be no dispute that the service of making available a car to the employee is being rendered by the applicant. In this context, both the conditions are fulfilled which are conditions in clause (b) of Section 65B (44). Whether the car given for official use, for personal use or use for both will not be making any difference. In view of the clear-cut language of Section 65B (44) (b), we answer the question accordingly. - Not liable to service tax.

Summary

Issues:
Levy of service tax on a proposed car lease scheme under Section 66B of the Finance Act, 1994.

Analysis:

1. The applicant, an information technology company, sought an advance ruling on whether the proposed car lease scheme for employees would be subject to service tax under the Finance Act, 1994. The scheme involved providing vehicles to employees during their employment, with cars hired from leasing companies and made available to employees who opt for personal and official use, paying the same amount charged by the applicant to the leasing company.

2. The key question was whether the amount charged by the applicant to employees for using the vehicles should be subject to service tax, considering that the service provided by the car leasing company to the applicant was already taxed under the service tax regime. The scheme was structured as an employment retention program, offering employees the option to use the cars during their employment.

3. The applicant's argument relied on the exception in Section 65B(44)(b) of the Finance Act, which excludes services provided by an employee to the employer in the course of employment from the definition of 'service.' The applicant contended that providing cars to employees fell within this exception since it was part of the employment terms and the charges were equivalent to what the applicant paid to the leasing company.

4. The Authority considered whether the service of 'making available' a car to employees by the applicant was in the course of or in relation to employment. It was established that the conditions in Section 65B(44)(b) were met, as the service was provided during employment and in connection to the employee's job, leading to the conclusion that this arrangement did not constitute a taxable service.

5. The Revenue representative argued that providing cars for both official and personal use would attract service tax. However, the Authority disagreed, emphasizing that the nature of use (official, personal, or both) did not affect the taxability under the clear language of Section 65B(44)(b). Therefore, the Authority ruled that the scheme did not amount to a taxable service, directing the matter to be disposed of accordingly.