2017 (1) TMI 98 - AT - Service Tax

Lease rental charges for motor vehicles - fleet management fee - non-payment of service tax - sale transaction or provision of service - N/N. 9/04-ST and 1/06-ST - the exact legal nature of the transaction between the appellant and their client has to be understood before arriving at a decision of service tax liability of the consideration received by the appellant - Held that - the clients were never became owners of the cabs. They can use the cabs as long as they are paying rent to the appellant for such usage. The clients do not possess full effective control of the cabs, which are leased to them by the notices. As recorded by the Original Authority, the appellants do not fulfil the attributes as laid down by the Hon ble Supreme Court to determine and conclude the transaction to be a deemed sale. As such, we find that the appellants failed to sustain legally their plea regarding non-applicability of the provisions of Service Tax to the transactions of renting of motor cabs and on such consideration received. Inclusion of fleet management charges in the taxable consideration - Held that - the appellant did not produce any evidence to indicate that the gross amount charged by them is inclusive of service tax payable. In fact the liability to service tax has been contested by the appellant. Hence, in terms of the provisions, it cannot be concluded that the gross amount is inclusive of service tax when no reference has been made to the service tax in the basic documents for realising the consideration. The appellants are liable to service tax as confirmed by the Original Authority. However, the demand shall be restricted to the normal period and the penalty under Section 78 is not sustainable. The benefit of abatement in terms of N/N. 9/04-ST and 1/06-ST shall be allowed on production and verification of supporting documents for fulfilment of the conditions stipulated therein - appeal disposed off - decided partly in favor of appellant.

Issues Involved:
1. Legality of service tax demands on lease rental charges.
2. Applicability of VAT on lease transactions.
3. Service tax liability on fleet management fees.
4. Time-barred demand and extended period of limitation.
5. Eligibility for abatement in value for service tax calculation.
6. Consideration of gross amount as cum-duty value.

Issue-Wise Detailed Analysis:

1. Legality of Service Tax Demands on Lease Rental Charges:
The appellants contested the service tax demands on lease rental charges, arguing that the transaction should be considered as a deemed sale under Article 366 (29A) of the Constitution and subjected to VAT. They claimed that they transferred the right to use motor vehicles along with effective control and possession to their clients, thus fulfilling the criteria for deemed sale. The Tribunal, however, noted that the ownership of the vehicles remained with the appellants, and the clients did not possess full effective control. The statutory provisions under Section 65 (105)(o) of the Finance Act, 1994, were cited, which stipulate tax liability for services provided by a rent-a-cab scheme operator. The Tribunal concluded that the appellants' transactions did not meet the criteria for deemed sale and were liable for service tax.

2. Applicability of VAT on Lease Transactions:
The appellants argued that they had already discharged VAT on the entire considerations received during the disputed period, and thus, the same transaction should not attract both VAT and service tax. They referred to the Supreme Court's decision in the BSNL case, which outlined five essential ingredients for a transaction to be considered a deemed sale. The Tribunal examined the terms of the agreement and found that the appellants did not fulfill the necessary attributes for deemed sale, particularly regarding the transferee's right to use the goods and the exclusion of the transferor's rights during the transfer period. Consequently, the Tribunal upheld the service tax liability.

3. Service Tax Liability on Fleet Management Fees:
The appellants contended that the fleet management fees were not for providing any service and thus not liable to service tax. They argued that the services provided under fleet management, such as insurance, registration, maintenance, and breakdown services, were not related to renting of cabs. The Tribunal, however, found that the fleet management services were invariably related to the renting of cabs and were integral to the renting service. Therefore, the fleet management charges were considered part of the taxable consideration for rent-a-cab services.

4. Time-Barred Demand and Extended Period of Limitation:
The appellants challenged the demand covered by the first show cause notice as barred by limitation, arguing that there was no suppression of material facts and that they had a bona fide belief that the transactions were covered by VAT law. The Tribunal noted that the dispute involved the classification of transactions under VAT or service tax, which had some ambiguity. Given the appellants' compliance with VAT provisions and the lack of convincing evidence of fraud or suppression, the Tribunal restricted the service tax liability to the normal period of demand and set aside the penalty under Section 78 of the Finance Act, 1994.

5. Eligibility for Abatement in Value for Service Tax Calculation:
The appellants sought abatement of 60% under Notification No. 9/2004 and Notification No. 1/2006. The Original Authority denied the abatement, citing that the appellants had availed CENVAT credit on inputs, which disqualified them from the abatement. The Tribunal directed that the appellants be allowed the abatement upon verification that no CENVAT credit on inputs or capital goods related to rent-a-cab service had been availed, and the benefit of Notification No. 12/03-ST had not been claimed.

6. Consideration of Gross Amount as Cum-Duty Value:
The appellants argued for the re-calculation of service tax liability by considering the gross amount as inclusive of service tax. The Tribunal found no evidence to support that the gross amount charged was inclusive of service tax, especially since the appellants had contested the service tax liability. Therefore, the Tribunal did not accept the gross amount as cum-duty value.

Conclusion:
The Tribunal upheld the service tax liability on lease rental charges and fleet management fees, restricted the demand to the normal period, and allowed abatement upon verification of conditions. The appeal was disposed of accordingly.

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