Possession and control determine rent-a-cab taxability; stage carriage hire escaped pre-2012 tax but later became taxable

Hire charges for buses supplied by a stage carriage operator for marriage functions and pilgrimages were not taxable as rent-a-cab service up to 30.06.2012 because renting required transfer of possession and control to the hirer, which was absent; the pre-01.07.2012 demand was therefore set aside. From 01.07.2012, the same activity was taxable because the buses were used under special permits or contract carriage arrangements for private hire, so they did not remain within the negative list or the relevant exemption; service tax was held payable for the later period. Penalties were set aside, and the matter was partly allowed.

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Issues: (i) Whether hire charges received by a stage carriage operator for providing buses for marriage functions and pilgrimages were taxable as rent-a-cab service for the period up to 30.06.2012. (ii) Whether the same activity was liable to service tax from 01.07.2012 in view of the negative list and the exemption notification.

Issue (i): Whether hire charges received by a stage carriage operator for providing buses for marriage functions and pilgrimages were taxable as rent-a-cab service for the period up to 30.06.2012.

Analysis: The applicable service tax entry required renting of a cab, and the decisive element was transfer of possession and control of the vehicle to the hirer. The activity here was only hiring of buses by the operator while retaining possession and control with itself. On that footing, the transaction did not answer the description of rent-a-cab service for the pre-negative-list period.

Conclusion: The demand of service tax for the period up to 30.06.2012 was unsustainable and was set aside, in favour of the assessee.

Issue (ii): Whether the same activity was liable to service tax from 01.07.2012 in view of the negative list and the exemption notification.

Analysis: From 01.07.2012, liability turned on whether the activity fell within the negative list or a specific exemption. Although transport of passengers by stage carriage was covered by the negative list, the buses were used under special permits or contract carriage arrangements for private hire, marriage parties and pilgrimages, which altered the character of the vehicle for that period. The exemption for contract carriage did not extend to tourism, conducted tour, charter or hire, and therefore the activity did not remain within the protected category.

Conclusion: Service tax for the period from 01.07.2012 onwards was held payable, and this issue was decided against the assessee.

Final Conclusion: The appeals succeeded only for the pre-01.07.2012 period, while the demand and interest for the post-01.07.2012 period were sustained. The penalties were set aside, and the appeals were disposed of as partly allowed.

Ratio Decidendi: For service tax purposes, renting requires transfer of possession and control of the vehicle to the hirer, and a stage carriage used on special permit or as contract carriage for hire does not retain its negative-list protection for the relevant period.

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