State Transport Undertaking not liable for service tax under reverse charge for rent-a-cab services

CESTAT New Delhi held that a State Transport Undertaking was not liable for service tax under reverse charge mechanism for rent-a-cab services. Following precedent from BMTC case, the Tribunal ruled that State Transport Undertakings are excluded from the definition of service providers under Finance Act provisions. Notification No. 25/2012 exempts State Transport Undertakings from tax liability. The department wrongly invoked extended limitation period without proving intent to evade tax. The original order was set aside and appeal allowed.

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Issues Involved:
The issues involved in this case include the invocation of the extended period of limitation for non-payment of service tax, liability under reverse charge mechanism, and the applicability of tax liability on State Transport Undertakings.

Extended Period of Limitation:
The appellant raised objections to the Show Cause Notice, arguing that it was barred by time as the demand for the period 2012-13 and 2013-14 was proposed in February 2016. They contended that limitations cannot be invoked based solely on audit observations. Reference was made to the decision in the case of M/s. G D Goenka Pvt. Ltd. vs. Commissioner of Central Goods and Service Tax, Delhi South. The appellant asserted that statutory bodies like themselves cannot be accused of having the intent to evade duty, citing the case of M/s. Chandigarh Transport Corporation vs Commissioner of Central Excise, Chandigarh I. The Tribunal found that there was no evidence of intent to evade tax, thus concluding that the extended period of limitation was wrongly invoked by the department.

Liability Under Reverse Charge Mechanism:
The department alleged that the appellant was liable under the reverse charge mechanism for services received, including buses and taxis on hire, and legal services. The appellant argued that as a State Transport Undertaking, they were exempt from tax liability as per Notification No. 25/2012 dated 20.6.2012. They also contended that the hiring of buses was exempt from service tax as per section 22 of Notification 32 of 2016. The Tribunal agreed with the appellant's arguments, holding that they were not liable to pay service tax for receiving buses and taxis on hire due to their status as a State Transport Undertaking.

Applicability of Tax Liability on State Transport Undertakings:
The Tribunal examined the definition of cab services and rent-a-cab operators in relation to State Transport Undertakings. Referring to precedents such as Bangalore Metropolitan Transport Corporation (BMTC) and Gujarat State Road Transport Corporation, it was established that State Transport Undertakings were excluded from the category of service providers for certain services. The Tribunal upheld that the appellant, being a State Transport Undertaking, was not liable for service tax under reverse charge mechanism for the services received.

In conclusion, the Tribunal set aside the Order-in-Original, ruling in favor of the appellant based on the lack of evidence of intent to evade tax, the exemption of State Transport Undertakings from tax liability, and the incorrect invocation of the extended period of limitation by the department.

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