Vehicle hiring versus rent-a-cab service: tax applies only when the hirer gets possession and control of the vehicle.

A vehicle-hiring arrangement is not taxable as rent-a-cab service where the owner retains possession and control of the vehicle and merely provides transport. The decisive distinction is between renting a cab, in which the hirer obtains possession and control and may use the vehicle freely, and a pure hiring contract, in which control remains with the owner. The Motor Vehicles Act, 1988 and the Rent A Cab Scheme, 1989 were treated as supporting that distinction. On this basis, the later High Court view was followed, the contrary Tribunal view was rejected, and the service tax demand was held unsustainable on merits.

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Issues: Whether a contract for hiring vehicles, where possession and control of the vehicle are retained by the owner, falls within the taxable category of rent-a-cab service under the service tax law.

Analysis: The decisive test applied was whether the transaction was one of renting a cab or merely hiring a vehicle. The earlier judicial view relied on the distinction that, for rent-a-cab service, the hirer must obtain possession and control over the vehicle and be free to use it as he pleases, whereas in a pure hiring arrangement the owner retains possession and control and merely provides transport service. The scheme under the Motor Vehicles Act, 1988 and the Rent A Cab Scheme, 1989 was treated as reinforcing that distinction. On that basis, the later High Court authority was followed as the governing view, and the contrary Tribunal view was not accepted.

Conclusion: The vehicle-hiring arrangement did not amount to taxable rent-a-cab service. The demand was unsustainable on merits, the assessee's appeal succeeded, and the Revenue's appeal failed.

Final Conclusion: The dispute was resolved in favour of the assessee on the substantive taxability issue, resulting in acceptance of the assessee's challenge and rejection of the Revenue's challenge.

Ratio Decidendi: A vehicle-hiring arrangement is taxable as rent-a-cab service only when the hirer obtains possession and control of the vehicle under a rent-a-cab scheme; where the owner retains possession and control, the transaction is not exigible to service tax under that category.

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