Rent-a-cab classification turns on vehicle type alone; service tax applies, but penalties may be waived for reasonable cause.

Vehicles hired out for passenger transport were treated as "cab"s for rent-a-cab scheme operator service under the Finance Act, 1994, because the statutory reference to motor cab and maxi cab from the Motor Vehicles Act was used only to identify the class of vehicle and did not require compliance with every regulatory formality under that Act before service tax could apply. The service tax demand was therefore upheld. Penalties were, however, waived because the assessee was a small businessman operating from a small town and the facts showed reasonable cause for non-compliance, bringing the penalty-relief provision into operation.

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Issues: (i) Whether the vehicles hired out by the assessee answered the description of "cab" and the activity amounted to "rent-a-cab scheme operator" service under the Finance Act, 1994. (ii) Whether penalties were liable to be sustained or could be waived for reasonable cause.

Issue (i): Whether the vehicles hired out by the assessee answered the description of "cab" and the activity amounted to "rent-a-cab scheme operator" service under the Finance Act, 1994.

Analysis: The definition of "rent-a-cab scheme operator" covers a person engaged in the business of renting cabs, and the term "cab" includes a motor cab or maxi cab. The Finance Act adopts the meanings of motor cab and maxi cab from the Motor Vehicles Act, 1988 only for identifying the class of vehicle. Such adoption does not require compliance with every formality under the Motor Vehicles Act before service tax can be levied. The statutory scheme showed an intention to tax services involving renting of vehicles used for carrying passengers.

Conclusion: The service rendered by the assessee was correctly treated as rent-a-cab scheme operator service, and the demand of service tax was upheld.

Issue (ii): Whether penalties were liable to be sustained or could be waived for reasonable cause.

Analysis: In the factual setting, the assessee was a small businessman operating from a small town, and the circumstances disclosed reasonable cause for the failure to comply with service tax requirements. The statutory power to waive penalty was attracted on those facts.

Conclusion: The penalties were set aside by extending the benefit of the reasonable cause provision.

Final Conclusion: The service tax demand was sustained, while the penal consequences were removed on account of reasonable cause.

Ratio Decidendi: Where the taxing statute incorporates vehicle classifications from the motor vehicles law only for identification, those definitions are applied for the limited purpose of classifying the service and do not import every regulatory requirement of that law; penalties may be waived when reasonable cause for non-compliance is established.

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