2019 (3) TMI 874 - AT - Service Tax

Classification of services - Supply of Tangible Goods services or rent-a-cab services - activity of providing buses to M/s Maharashtra State Road Transport Corporation (MSRTC) and to M/s Pune Mahanagar Parivahan Mandal Ltd. (PMPML) - exempt services or not - Circular No.89/7/2006-Service Tax dated 18/12/2006 - right of possession and effective control transferred or not - Held that - On a reading of the terms of the agreement it is seen that the fleet owner has the right of possession and effective control only for name sake. The right of possession if any envisaged in terms of the contract is only for the proper up keep and maintenance of the vehicle and not for using the same for any benefits to him. This is more in the nature of responsibility rather than right. In our standing the right of possession and effective control should entail in the gainful use or deployment of buses by the fleet owner during the time in which they are not plying for the purpose of MSRTC during the period of contract. As long as the fleet owner cannot use them for gainful deployment by no stretch of imagination it can be said that effective control is with the fleet owner. Therefore going through the terms of the agreement it is to be construed that effective control is transferred. Thus it cannot be said that right of possession and effective control is retained with the fleet owner. Therefore such supply of buses by the appellants to MSRTC & PMPML is in the nature of supply of tangible goods. Time limitation - Held that - The appellants were arguing on different classifications of the service they have rendered. However they have not come forward to pay service tax under any one of them. Therefore the extended period is invocable. Penalty - Held that - Looking in to the fact that the transaction was with public sector undertakings and there were different views on the issue one need to take a lenient view as regards penalties by invoking the provisions of Section 80 - penalties set aside. Matter remanded back to the original authority to re-examine the classification of the service provided by the appellants - appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of services provided by the appellants: whether it falls under "Supply of Tangible Goods Service" or "Rent-a-Cab Service".
2. Applicability of service tax exemption based on the nature of service provided.
3. Evaluation of penalties imposed under Sections 77 and 78 of the Finance Act, 1994.
4. Consideration of the extended period for invoking the demand.

Issue-Wise Detailed Analysis:

1. Classification of Services:
The primary issue was to determine whether the services provided by the appellants to MSRTC and PMPML should be classified under "Supply of Tangible Goods Service" or "Rent-a-Cab Service." The department classified the services under "Supply of Tangible Goods Service" as per Section 65(105)(zzzzj) of the Finance Act, 1994. The appellants argued that their services should be classified under "Rent-a-Cab Service" as defined in Section 65(91) of the Finance Act, 1994. The Tribunal examined the terms of the agreement, which indicated that MSRTC had effective control over the buses, including appointing conductors, specifying bus specifications, deciding routes, and having the right to display advertisements. The Tribunal concluded that the effective control was transferred to MSRTC, and thus, the services should be classified under "Supply of Tangible Goods Service."

2. Applicability of Service Tax Exemption:
The appellants contended that MSRTC and PMPML were providing a sovereign function and were exempt from service tax as per Circular No. 89/7/2006-Service Tax dated 18/12/2006. They argued that their services fell under the "Tour Operator Service" and "Rent-a-Cab Service" categories, which should be exempt. However, the Tribunal found that the services provided by the appellants did not meet the criteria for exemption under the cited circular and were taxable under "Supply of Tangible Goods Service."

3. Evaluation of Penalties:
The Tribunal reviewed the penalties imposed under Sections 77 and 78 of the Finance Act, 1994. The appellants argued that there was no deliberate intention to evade payment of duty, citing various case laws to support their claim. The Tribunal, considering the different views and the fact that the transactions were with public sector undertakings, invoked the provisions of Section 80 of the Finance Act, 1994, to set aside the penalties, taking a lenient view.

4. Consideration of the Extended Period:
The department invoked the extended period for the demand, arguing that the appellants had not come forward to pay service tax under any classification. The Tribunal agreed with the department, stating that the appellants' failure to pay service tax under any classification justified the invocation of the extended period.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter back to the original authority for re-examination of the classification of the service provided by the appellants. The original authority was directed to quantify the service tax liability afresh, giving the appellants a reasonable opportunity to present their case. The penalties imposed were set aside by invoking Section 80 of the Finance Act, 1994.