Non-air-conditioned vehicles on hire may be taxable as rent-a-cab service if they do not qualify as contract carriage.

The exemption for non-air-conditioned contract carriage under Notification No. 12/2017-Central Tax (Rate) applies only where the vehicle meets the statutory concept of contract carriage under the Motor Vehicles Act, 1988, namely a vehicle hired under a contract for a fixed set of passengers and not available for boarding or alighting by others en route. Where non-air-conditioned vehicles are merely supplied on hire and do not satisfy that description, the exemption is unavailable. The service is then treated as rent-a-cab service and is taxable at the applicable rate, subject to the input tax credit position.

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Issues: Whether the service of providing non-air-conditioned vehicles on hire to the Indian Army was covered by the exemption for non-air-conditioned contract carriage under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, and if not, whether the service was taxable as rent-a-cab service.

Analysis: The exemption applied only to a non-air-conditioned contract carriage as understood from section 2(7) of the Motor Vehicles Act, 1988, namely a vehicle engaged under a contract for a fixed set of passengers and not available for boarding or alighting by others en route. On the facts, the service of supplying vehicles on hire did not satisfy that description. The ruling further noted that even on the assumption of a contract carriage, hired non-air-conditioned contract carriages were excluded from the stated exemption. The service therefore fell within the scope of rent-a-cab service, with tax payable at the stated rate depending on availability of input tax credit.

Conclusion: The service was not exempt under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and was taxable as rent-a-cab service.

Ratio Decidendi: A service of supplying non-air-conditioned vehicles on hire is not exempt as non-air-conditioned contract carriage unless it satisfies the statutory concept of contract carriage; where it does not, the service is taxable as rent-a-cab service.

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