reverse charge-applicability, Service Tax

[Dalia Felix]

experts,

when a company hires(contract carriage) buses and taxi cars for transporting employees, what is the applicability of reverse service tax on the company ? A fixed amount is to be paid as monthly rental to the owners (usually individuals) and the period of contract is 2 years. what is the applicability of 23 (b) of the mega exemption notification  no. 25/2012 in this case?

one of our learned members has expressed his view (reply to another query) that 'buses having contract permit hired for transportation of employees is exempted'. Frankly, i couldn't locate the basis for this opinion.  Can you help me? What I noticed was 'exemption to public transport other than predominantly for tourism purpose in a vessel between places located in India'.

Why 'renting' of motor vehicles has been retained in the 'reverse charge notification' where as it was proposed to be on 'renting/hiring' as per Notificaion No. 15/2012-ST 

Posts / Replies

[JAMES PG]

As per Sl No 23 ( b) of Not 25/12, transport of passengers by a contract carriage  excluding tourism, conducted tour, charter or hire is exempted.

“Contract carriage” has the meaning assigned to clause (7) of Section 2 of the Motor Vehicles Act  which reads as follows:

 “7) “contract carriage” means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorised by him in this behalf on a fixed or an agreed rate or sum –

  (a) on a time basis, whether or not with reference to any route or distance; or

 (b) from one point to another,

and in either case, without stopping to pick up or set down passengers not included in the    contract anywhere during the journey, and includes –

 (i) a maxicab; and

(ii) a motor cab notwithstanding that separate fares are charged for its passengers

 Firstly, contract carriage on “charter or hire” basis is excluded from the purview of exemption in the Notification. For transportation of Company employees, motor vehicle is taken on hire or charter basis.

 Secondly, the points for stoppage of vehicle for pick up or set down will normally be mentioned in the contract for employee pick up and hence it will cease to be a contract carriage for the purpose of claiming exemption under the Notification.

In view of the above, it is strongly felt that reverse charge is applicable for motor vehicle hired for employee transportation from an individual or proprietory concern

[Dr. Sanjiv Agarwal]

Dear Mr. Dalia Felix,

 We would like you to note the following –

1)    Hiring of taxi cars for employers or otherwise in covered under reverse charge in Entry No. 7 of Notification No. 30/2012.

 2)    Hiring of contact carriage would have to satisfy the following definition as per section 2(7) of Motor Vehicle Act, 1988

Meaning of Contract Carriage

According to Section 2(7) of the Motor Vehicles Act, 1988, contract carriage is defined as under –

“Contract carriage means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorized by him in this

behalf on a fixed or an agreed rate or sum —

(a)  on a time basis, whether or not with reference to any route or distance; or

(b)  from one point to another, and in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, and includes —

(i) a maxicab; and

(ii) a motor cab notwithstanding that separate fares are charged for its passengers”.

The ingredients of a contract carriage are as follows :—

-       It carries passengers for hire or reward;

-       It is engaged in contract whether expressed or implied for use of such vehicle as a whole;

-       The contract must be entered into by the person with the holder of permit in relation to such vehicle or with any person authorized by him;

-       The agreed consideration can either by on time basis or one point to another;

-       The vehicle should not stop to pick up or set down passengers not included in the contract anywhere during the journey;

-       It includes maxi-cab or motor-cab.

 Therefore, our view is that vehicle transportation of employees by bus may be covered under definition of contact carriage.

 3)    Reverse charge is applicable to all motor vehicles as per Notification No. 30/2012.

4)    Contract carriages are exempt under Notification No. 25/2012 [entry No. 23(b)] but this exemption excludes. Contract carriages used for tourism / conducted tour / charterer / hire.

The case of only renting makes the confusion clear.

Regards,

Sanjiv Agarwal

[NEERAJ KUMAR, RANCHI]

The definition of contract carriage definition given is as under.

Contract Carriage Buses Permits (Chartered Buses):

This is the most common type of permit used for hire and reward purpose. The permit holder can operate under a contract with his client for a fixed destination within Delhi or outside Delhi. For this an agreement should be executed between the clients and the operators and the list of passengers should also be available with the driver of bus. The permit holder cannot pick passengers other than those mentioned in the list. Such type of buses are also known as Chartered Buses. These permits are issued under section 74 of Motor Vehicles Act, 1988. The applicant has to apply on form PCA alongwith other formalities.
So from the above definition it is clear that contract carriage bus permit is issued for charter buses only. Now I am in agreement with the view expressed by Mr James that exemption in such case is not available as per the Not no 25/12-ST. since clause 23(b) of the said notification provides that a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire.

However I'll wait for some more responses in the matter.