Car lease scheme for employees deemed non-taxable under Finance Act; nature of use irrelevant

The Authority ruled that the proposed car lease scheme for employees, provided by an information technology company, did not constitute a taxable service under the Finance Act, 1994. The scheme, structured as an employment retention program offering vehicles for personal and official use, was found to fall within the exception for services provided by an employee to the employer during employment. The Authority emphasized that the nature of use (official, personal, or both) did not impact the taxability under the relevant provision, directing the matter to be disposed of accordingly.

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Issues:
Levy of service tax on a proposed car lease scheme under Section 66B of the Finance Act, 1994.

Analysis:

1. The applicant, an information technology company, sought an advance ruling on whether the proposed car lease scheme for employees would be subject to service tax under the Finance Act, 1994. The scheme involved providing vehicles to employees during their employment, with cars hired from leasing companies and made available to employees who opt for personal and official use, paying the same amount charged by the applicant to the leasing company.

2. The key question was whether the amount charged by the applicant to employees for using the vehicles should be subject to service tax, considering that the service provided by the car leasing company to the applicant was already taxed under the service tax regime. The scheme was structured as an employment retention program, offering employees the option to use the cars during their employment.

3. The applicant's argument relied on the exception in Section 65B(44)(b) of the Finance Act, which excludes services provided by an employee to the employer in the course of employment from the definition of 'service.' The applicant contended that providing cars to employees fell within this exception since it was part of the employment terms and the charges were equivalent to what the applicant paid to the leasing company.

4. The Authority considered whether the service of 'making available' a car to employees by the applicant was in the course of or in relation to employment. It was established that the conditions in Section 65B(44)(b) were met, as the service was provided during employment and in connection to the employee's job, leading to the conclusion that this arrangement did not constitute a taxable service.

5. The Revenue representative argued that providing cars for both official and personal use would attract service tax. However, the Authority disagreed, emphasizing that the nature of use (official, personal, or both) did not affect the taxability under the clear language of Section 65B(44)(b). Therefore, the Authority ruled that the scheme did not amount to a taxable service, directing the matter to be disposed of accordingly.

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