Vehicle leasing as rent-a-cab service: retained control and possession defeated deemed sale treatment and sustained service tax.

Vehicle leasing was tested on the terms of the agreements and the actual transfer of control and possession. The Tribunal held that the clients did not obtain full effective control or exclusive legal possession of the vehicles, while the lessor retained ownership-linked responsibilities such as insurance and maintenance. On that basis, the arrangement was characterised as hiring or renting of motor vehicles for consideration and not a transfer of the right to use goods amounting to a deemed sale. Payment of VAT on lease rent did not by itself exclude service tax where the ingredients of rent-a-cab service were otherwise met, and the earlier decision in the same factual matrix was followed. The service tax demand, interest, and penalty were sustained.

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Issues: Whether the lease rental charges received for vehicle leasing were liable to service tax as rent-a-cab service, or whether the transaction amounted to a transfer of the right to use goods amounting to a deemed sale exigible to VAT.

Analysis: The transaction had to be tested on the terms of the agreements and the real nature of control and possession transferred to the clients. Applying the principles governing transfer of right to use goods, the Tribunal found that the clients did not obtain full effective control or exclusive legal possession of the vehicles, and the appellant continued to retain ownership-related control such as insurance and maintenance responsibilities. The dominant character of the arrangement was hiring or renting of motor vehicles for consideration, and the fact that the appellant paid VAT on lease rent did not exclude service tax liability where the statutory ingredients of rent-a-cab service were otherwise satisfied. The Tribunal also held that the earlier decision in the appellant's own case covered the same factual matrix, and no ground was shown to depart from it.

Conclusion: The vehicle leasing arrangement was taxable as rent-a-cab service and was not a deemed sale by transfer of the right to use goods; the demand of service tax, interest, and penalty was sustained, and the appeal failed.

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