2018 (1) TMI 171 - HC - Service Tax

Rent a cab services - distinction between renting and hiring - appellant pleaded that he is not renting the cabs to GAIL rather the GAIL is hiring cabs for its use from the appellant - whether such a distinction between renting and hiring is necessary for deciding the taxibility of the above service? - Held that - what is sought to be taxed under the Act is the service provided by a person under a rent-a-cab scheme. It makes no distinction between renting or hiring. The two terms have not been specifically defined under the Act and as such they have to be assigned the meaning which is acceptable in common parlance. Ordinarily, in common usage, there is hardly any distinction between renting or hiring and both the terms are usually used as synonym. The appellant indulges in providing service under a rent-a-cab scheme in relation to a cab and therefore irrespective of whether he retains possession and control of the vehicle or passes it to the consumer, the service so rendered by him would fall within the taxable service as defined under Section 65 (105) (o) of the Act and is chargeable to tax under Section 66 of the Act. The rent-a-cab scheme 1989 formulated by the Central Government in exercise of powers under Section 75 of the Motor Vehicles Act, 1988 providing for obtaining a licence by the operator of the scheme has nothing to do with the provisions relating to the imposition/chargebility of service tax. Therefore notwithstanding the above scheme, any person providing service of renting a motor cab would be amenable to service tax under the Act. Appeal dismissed - decided in favor of revenue.

Summary

Issues:
1. Whether the facility of motor cab provided by the appellant to GAIL falls under taxable services as defined under the Finance Act and is chargeable to service tax?

Analysis:
The appellant, a traveling agency, provided vehicles to GAIL under a monthly hiring agreement. The agreement stated that the control of the vehicle remains with the appellant, who would charge additional amounts if the vehicle is used beyond the prescribed mileage. The appellant argued that since the control of the cabs remained with them, they were not a "rent-a-cab scheme operator" and should not be liable for service tax. However, this argument was rejected by the assessing authority, the first appellate authority, and the tribunal.

The Finance Act defines "taxable service" to include services provided by a rent-a-cab scheme operator. The Act levies service tax on such taxable services. In a case before the Madras High Court, it was held that providing services related to renting a motor cab falls within the tax net. On the other hand, the High Court of Uttarakhand distinguished between renting and hiring of cabs, stating that possession and control passing to the hirer determine tax liability.

The Allahabad High Court observed that the Act does not distinguish between renting and hiring in its provisions. The court noted that in common usage, renting and hiring are used interchangeably. Therefore, the appellant providing services under a rent-a-cab scheme, regardless of possession and control, falls within the taxable service definition and is liable for service tax.

The court clarified that the rent-a-cab scheme under the Motor Vehicles Act does not affect the service tax provisions. Thus, any person providing services of renting a motor cab is subject to service tax. Consequently, the court ruled in favor of the revenue and against the appellant, dismissing the appeal for lack of merit.