BANGALORE METROPOLITAN TRANSPORT CORPORATION – A RENT-A-CAB OPERATOR?

[Mr. M. GOVINDARAJAN]

Section 65 (105)(o) of the Finance Act, 1994 (‘Act’ for short) defines the taxable service in relation to renting of the cabs as any service provided or to be provided to any person by a rent-a-cab operator in relation to the renting of a cab.  Section 65 (91) defines the term ‘rent-a-cab’ operator any person engaged in the business of renting of cabs. Section 65 (20) defines the term ‘cab’ as-

• a motor car; or
• a maxicab; or
• any other vehicle constructed or adapted

to carry more than 12 passengers, excluding the driver, for hire or reward.  If the above are utilized for educational body imparting skill or knowledge or lessons on any subject or field, other than a commercial training, or coaching centre, shall not be included with the meaning of a cab.

In ‘Bangalore Metropolitan Transport Corporation Limited V. Commissioner of Service Tax, Bangalore’ – 2015 (2) TMI 100 - CESTAT BANGALORE the appellant is the service tax registration holder.  They are paying service tax for the services rendered by them which are pertaining to advertisement agency, renting of immovable property and manpower recruitment services.   The main business of the appellant is transporting of passengers with the city of Bangalore and nearby mofussil areas.  The buses are operated under stage carriage permits.   The appellant is also providing buses to factories for transport of other employees and also schools and colleges for transport of students. 

The Revenue took a view that such provision of buses to factories, industries etc., for transporting their employees and also for providing buses at the request of the individuals for special functions amount to rendering of rent-a-cab service.  Show cause notices were issued and confirmed the demand, interest and penalty.  Against the order the appellant filed appeal before the Tribunal.

Before the Tribunal the appellant submitted the following:

• the appellants are not at all rendering any service under the heading of rent-a-cab service;
• Despite their reply to the notices that they are not liable to service tax under this sort of service, proceedings were initiated after nearly a year to demand service tax;
• The entire demand is time barred;
• The appellants are not liable to service tax just like BMTC buses which pick up passengers in various bus stops and run on scheduled trips from place to place within the city;
• The buses are running from different prime of the city from factory and employees are picked up on route from various points, the services provided are similar to the normal activity of BMTC and cannot be considered as rent-a-cab service;
• No specific bus with registration number is allocated for any of the customers and the charges are made on the actual distance run in a month and the rate is charged per kilometer;
• There is no fixed charge per month and customers are free to inform the appellant in advance whenever they do not need services;
• The buses are considered as stage carriage buses and operations carried out for their customers also cannot be considered otherwise;
• Thus BMTC cannot be considered to have been engaged in the business of renting of cabs;

The Revenue contended that the provision of buses to factors and industries would amount to renting of buses to them and it cannot be considered as stage carriage operations.

The Tribunal analyzed the provisions in Finance Act in regard to renting-a-cab service.  The Tribunal found that rent-a-cab operator according to the provisions of Finance Act means any person engaged in the business of renting of cabs.  It has to be taken in mind that while defining the taxable service, there has been a conscious effort in indicating that the directed service providers for the purpose of levy of service tax.

The Tribunal held that apparently BMTC cannot be considered as a rent-a-cab operator at all.  The business undertaken by the appellant is to provide bus facility/transport facility to the citizens of Bangalore city and the main activity is running the buses in the city for the convenience of citizens and not a rent-a-cab scheme operation.  The Tribunal further found that the definition itself excludes BMTC from the category of service providers.

The appellant did not collect a monthly rent as observed by the Commissioner in its order.  The charges are made on the number of kilometers actually run multiplied by the amount fixed per kilometer.  In rent-a-cab scheme a monthly rent is fixed and minimum number of kilometer may also be fixed crossing which the customers may have to pay extra.  If the number of kilometers falls below the number and even if it is substantially low, yet the customs would be liable to pay the entire rent.

In this case the show cause notice was issued in September 2011 and the demand relates to the period substantial portion of which is time barred.  Further the Tribunal found that the issue is highly debatable and arguable and therefore the invocation of extended period can  definitely be not imaginable.  The Tribunal allowed the appeal filed by the appellant.

Aggrieved against the order of the Tribunal the Revenue filed appeal before the Supreme Court in Civil Appeal D33775/2014.  The Supreme Court condoned the delay in filing appeal before the Supreme Court.  The Supreme Court [Commissioner of Service Tax, Bangalore Versus Bangalore Metropolitan Transport Corporation - 2015 (2) TMI 148 - SUPREME COURT OF INDIA] dismissed the appeal on 01.12.2014.