2008 (10) TMI 123 - AT - Service Tax

Tax Tribunal: Cab Service Not Rent-A-Cab Scheme Operator

The Tribunal determined that providing cabs on hire on a demand basis with charges based on a per kilometer rate does not constitute a 'rent-a-cab scheme ... Rent-a-cab operator's service - taxable activity of renting of cabs - transport service - ordinary meaning of to rent - control and disposal of vehicleRent-a-cab operator's service - transport service - control and disposal of vehicle - Whether the appellants' activity of providing taxis on hire charged on per kilometre basis falls within the definition of rent-a-cab operator's service or is a transport service outside that definition. - HELD THAT: - The Tribunal applied the established test that what is taxable under the entry 'rent-a-cab operator's service' is the activity of renting of cabs, which involves giving a cab, with or without driver, to a client for a certain period of time for consideration, during which the vehicle is at the disposal and under the control of the client. The ordinary meaning of 'to rent' contemplates temporary transfer of possession and control to the hirer. By contrast, where a cab is provided with a driver on demand for point-to-point travel and charges are levied on a per-kilometre (or lump-sum distance) basis, control of the vehicle remains with the cab operator/driver and the activity is a transport service. Applying this principle to the facts, the appellants charged on a per-kilometre basis and did not part with control or disposal of the vehicle to the client; therefore their activity does not constitute a rent-a-cab operator's service but is a transport service and outside the taxable entry for renting of cabs. The Tribunal followed its earlier decision in R. S. Travels which articulated and applied this distinction and held that on-demand, per-kilometre hire amounts to transport service rather than renting.The demand of service tax as rent-a-cab operator's service is not sustainable; the appellants provide transport service charged per kilometre and the impugned order is set aside.Final Conclusion: Appeal allowed; the demand of service tax as rent-a-cab operator's service was set aside because the activity involved on-demand per-kilometre taxi hire where control of the vehicle remained with the operator, constituting a transport service outside the rent-a-cab entry. Issues:Interpretation of the definition of 'rent-a-cab scheme operator's service' under section 65(91) of the Finance Act, 1994.Analysis:The issue in this case revolves around the interpretation of the definition of 'rent-a-cab scheme operator's service' under section 65(91) of the Finance Act, 1994. The Tribunal considered whether providing cabs on hire on a demand basis, where charges are based on a per kilometer rate, falls under the definition of a rent-a-cab scheme operator's service. The Tribunal analyzed the legislative history of the term, noting that it was brought under the service tax net in 1997 and underwent an amendment in 1998. The amendment expanded the definition to include any person engaged in the business of renting cabs. The Tribunal emphasized that the key factor in determining whether an activity falls under this definition is whether the cab is given to the client for a certain period in exchange for payment, with the client having control over the vehicle during the rental period.The Tribunal referred to previous decisions and highlighted that the essence of a rent-a-cab scheme involves giving the cab to the client for a specific period, with the client having control over the vehicle. In contrast, when a cab operator provides a cab with a driver on demand, charges based on distance, and retains control of the vehicle, it constitutes a transport service rather than a rent-a-cab scheme operator's service. The Tribunal emphasized that the test lies in whether the activity involves giving the cab to the client for a defined period with the client having control over the vehicle.Based on the analysis of the facts presented, the Tribunal concluded that the appellant was not providing the service of a rent-a-cab scheme operator. Therefore, the demand for service tax was set aside, and the appeal was allowed. The decision was made in line with the interpretation of the definition and the distinction drawn between a rent-a-cab scheme operator's service and a transport service provided on a per kilometer basis with the operator retaining control of the vehicle.