Rent-a-cab taxability depends on exclusive possession and control of vehicles under the contract

Taxability under the rent-a-cab service entry turns on whether the hirer receives exclusive possession and control of the vehicle under a contract for consideration. The note states that where vehicles are supplied to identified users for their own use, with control transferred during the contract period, the activity is treated as taxable renting of motor vehicles rather than mere hiring. On limitation, the note indicates that tax collection without deposit undermines a bona fide confusion plea. It also records that abatement, the precise quantum of levy, and penalty may require fresh examination where the record is incomplete or the statutory discretion on penalty is relevant.

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Issues: (i) Whether the activity of renting vehicles to identified users for their exclusive use with possession and control over the vehicles transferred to the users amounted to taxable service under the rent-a-cab entry; (ii) Whether the demand was barred by limitation and whether abatement and penalty required reconsideration.

Issue (i): Whether the activity of renting vehicles to identified users for their exclusive use with possession and control over the vehicles transferred to the users amounted to taxable service under the rent-a-cab entry.

Analysis: The taxing entry covered service provided in relation to renting of a cab. The vehicles were given to the recipients under contract for transportation of their employees, for consideration, and the users had exclusive possession and control during the contract period. The distinction between mere hiring and renting was treated as material, and the scheme of renting under the Motor Vehicles Act supported the view that transfer of control to the hirer was the essential feature of a taxable renting transaction.

Conclusion: The activity was taxable as renting of motor vehicles under the rent-a-cab service entry, and the levy was confirmed.

Issue (ii): Whether the demand was barred by limitation and whether abatement and penalty required reconsideration.

Analysis: Since tax had been collected but not deposited, the conduct negatived the plea of bona fide confusion for limitation purposes. At the same time, the question of admissible abatement and the exact quantum of levy required fresh examination by the adjudicating authority, and penalty was also open to reconsideration in light of the statutory discretion available where there was confusion in the field.

Conclusion: The limitation plea was rejected, but the matter was remanded for limited reconsideration of abatement, quantum, and penalty.

Final Conclusion: The core liability to service tax was upheld, but the assessment was sent back for limited re-adjudication on abatement, quantum, and penalty, so the appeals were only partly successful.

Ratio Decidendi: For the rent-a-cab service entry, taxable renting arises when the hirer obtains possession and control of the vehicle for exclusive use under a contract for consideration; mere characterization as hiring does not avoid tax.

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