2023 (9) TMI 1254 - AT - Service Tax

Appellants win service tax dispute with exemption for gross receipts, not 'Rent-a-Cab Service'

The Tribunal ruled in favor of the appellants, finding that they were not liable to pay service tax as their taxable service value fell below the ... Non-payment of Service Tax - Rent-a-Cab Service - the fact that the turnover of each of the appellants was well within the exemption limit provided under Notification No. 06/2005 dated 01.03.2005 not taken into account by authorities - service qualify as rent a cab service or not - penalties - HELD THAT:- The gross value of the taxable service rendered by each of the appellants is less than the threshold limit of Rs.10 Lakhs as prescribed under Notification No. 06/2005-ST dated 01.03.2005 after giving allowance to the exemption for 60% of the gross receipt in terms of Notification No. 01/2006-ST dated 01.03.2006. We find that the Departmental authorities have considered this principle and accepted the contention of the appellants in the case of VISHWANATH MISHRA VERSUS COMMR. OF C. EX., LUCKNOW [2018 (4) TMI 1677 - CESTAT ALLAHABAD] and SECY. FEDERATION OF BUS-OPERATORS ASSN. OF TN VERSUS UNION OF INDIA [2001 (4) TMI 7 - MADRAS HIGH COURT]. The Principal Bench of CESTAT, in the case of M/S. ASHOK KUMAR MISHRA VERSUS CCE, ALLAHABAD [2014 (1) TMI 609 - CESTAT NEW DELHI] held that for the purpose of calculating the threshold limit, 60% of the consideration exempt, vide Notification No.01/2006, should not be taken into account. If 60% of the consideration received by the appellants is excluded, they fall under the exempted category and as such, are not liable to pay any tax. Therefore, we find that the appeals succeed on this count. Ongoing through the agreements relied upon by the appellants, it is found that the appellants have simply provided their buses to M/s PRTC on hire and have received remuneration on per-kilometre basis; there is no arrangement of renting. Classification of service as rent-a-cab service or not - HELD THAT:- Hon’ble High Court of Uttrakhand in the case of COMMISSIONER, CUSTOMS AND CENTRAL EXCISE, MEERUT-I VERSUS M/S. RS. TRAVELS [2014 (10) TMI 817 - UTTARAKHAND HIGH COURT] held that when there is a contract of hire and there is no renting of a cab, there is no question of the assessee being assessed in respect of services rendered in connection with rent-a-cab as there is no renting at all. Therefore, we are of the considered opinion that the appeals succeed on the issue of classification of services also. Penalties - HELD THAT:- The appeals succeed on both counts, the question of penalties does not arise. The impugned orders are not sustainable and are liable to be set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the service rendered by owners who supplied one bus each to a state road transport corporation under per-kilometre remuneration agreements constitutes a taxable 'rent-a-cab' service or is a hire/contract of carriage not exigible to service tax as rent-a-cab. 2. Whether the appellants' taxable turnover exceeds the statutory threshold for service tax liability after application of Notification No. 01/2006 (60% exemption of gross receipts) and Notification No. 06/2005 (threshold exemption), i.e., whether the 60% exempt portion must be included in the threshold computation. 3. Whether penalties may be sustained where the service classification and threshold/exemption determinations favor the assessee. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Classification - 'Rent-a-Cab' Service vs. Hire/Contract Legal framework: Taxability depends on whether the factual arrangement amounts to provision of 'rent-a-cab' service as defined under the service tax law or is a contract of hire/lease where the owner supplies vehicle and services under terms amounting to hiring rather than renting; characterization is fact-sensitive and determined by the nature of the agreement and control/possession aspects. Precedent treatment: The Tribunal has considered authorities holding that where there is a pure contract of hire with no element of renting, the service cannot be taxed as rent-a-cab; other decisions have distinguished arrangements where control, renting features or service elements point to a taxable activity. (Court referenced prior administrative and judicial determinations adopting the hire/lease distinction.) Interpretation and reasoning: The agreements were examined and found to provide for per-kilometre remuneration with appellants bearing diesel, repairs, maintenance and driver salaries. There was no arrangement evidencing renting (i.e., no lasting transfer of possession/marketable hiring resembling cab rental services). On the facts, appellants 'simply provided their buses ... on hire' and received per-kilometre consideration, which the Court construed as not constituting rent-a-cab service. Ratio vs. Obiter: Ratio - where contract terms show per-kilometre hire with owner retaining obligations for vehicle operation and maintenance, such arrangement does not constitute 'rent-a-cab' service for levy purposes. Observations distinguishing other fact patterns where rent-a-cab would apply are obiter to the extent not grounded in these facts. Conclusion: The service was not correctly classified as 'rent-a-cab'; the appellants' services fall outside that taxable category on the factual matrix presented. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Threshold Computation and Application of 60% Exemption Legal framework: Notification mechanism exempts a specified percentage of gross receipts (60%) for certain transport services; a separate notification prescribes a monetary threshold (Rs.10 lakhs) below which service tax does not apply. The legal question is whether the exempted portion is to be excluded when determining whether the taxable turnover exceeds the threshold. Precedent treatment: Administrative orders and Tribunal decisions have treated the 60% exemption as reducing the taxable consideration for threshold purposes; some authorities have applied that principle while other precedents have considered differing approaches. The Court relied on prior Tribunal reasoning that 60% of consideration exempted under the notification should not be taken into account for threshold computation. Interpretation and reasoning: Applying the exemption results in each appellant's taxable value falling below the statutory threshold. The Department had accepted this principle in other, similar matters. The Court adopted the approach that excludes the 60% exempt portion from the calculation of taxable turnover for the threshold test, thereby rendering the appellants' services exempt from service tax liability under the threshold notification. Ratio vs. Obiter: Ratio - for threshold determination under the relevant notifications, the 60% exempt portion of gross receipts is excluded from taxable turnover; where exclusion causes taxable receipts to fall below the threshold, no service tax liability arises. Any contrary observations on alternative methods of computation are obiter. Conclusion: After allowing the 60% exemption, appellants' taxable receipts are below the threshold and therefore not liable to service tax; appeals succeed on this ground as well. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Imposition of Penalty Legal framework: Penalties under service tax law are contingent on taxable liability and correctness of assessment/classification; if the primary tax demand is unsustainable, penalty generally cannot stand. Precedent treatment: Courts and tribunals have set aside penalties where tax demands were negated by reclassification or by application of exemption/threshold provisions. Interpretation and reasoning: Because the Court concluded that (a) the services were not rent-a-cab and (b) taxable turnover after exemption was below threshold, the foundational basis for the tax demand failed. Penalties premised on the tax demand therefore lacked sustainment. Ratio vs. Obiter: Ratio - where tax liability is negated by correct classification or exemption/threshold application, connected penalties cannot be imposed. Remarks about penalty assessment in differing factual matrices are obiter. Conclusion: Penalties do not arise and cannot be sustained in the circumstances; the question of penalty is rendered moot by the findings on classification and threshold. OVERALL CONCLUSION The impugned orders confirming service tax demands and penalties were not sustainable: (a) the services constituted hire arrangements rather than rent-a-cab service; (b) after excluding the 60% exempt portion, taxable receipts fell below the statutory threshold; and (c) consequently, penalties could not be imposed. Appeals are allowed on these grounds.