Rent-a-cab service provider liable for service tax despite retained vehicle ownership, penalty reduced under Section 78

CESTAT New Delhi held that appellant providing vehicles to clients with retained ownership constituted rent-a-cab service liable for service tax. The tribunal found extended limitation period correctly invoked due to suppression, as appellant had service tax registration since 2001-02 but stopped filing returns after 2005, showing intent to evade tax. Interest demand was upheld as compensatory for withheld tax payments. While penalty under Section 77 was confirmed, appellant qualified for reduced penalty under Section 78 having paid tax and interest before the original order date. Appeal partially allowed regarding penalty reduction.

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Issues Involved:
1. Whether the appellant was providing rent-a-cab service.
2. Applicability of extended period for demand.
3. Liability of the appellant for the period April 2010 to December 2010.
4. Imposition of interest and penalties under Sections 77 and 78 of the Finance Act, 1994.
5. Eligibility for reduced penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Whether the appellant was providing rent-a-cab service:
The Tribunal examined the sample work order from SECL, which indicated that the appellant provided Tata Indica vehicles on a monthly rental basis, inclusive of service tax. The Tribunal noted that the appellant provided vehicles under both rate and non-rate contracts, with drivers employed by the appellant, and all maintenance and statutory charges borne by the appellant. The vehicles remained under the appellant's control and possession. Based on the statutory provisions under Section 65(105)(o) of the Finance Act, 1994, and relevant case law, the Tribunal held that the appellant was indeed providing rent-a-cab service and was liable to pay service tax.

2. Applicability of extended period for demand:
The Tribunal noted that the appellant had service tax registration since 2001-2002 but stopped filing returns after March 2005. The department discovered the appellant's activities during an investigation of SECL's records. Despite several reminders, the appellant did not furnish the required information or appear for personal hearings. The Tribunal found that the appellant was aware of their service tax liability, as the work order from SECL included service tax. This established the appellant's intent to evade tax, justifying the invocation of the extended period for demand.

3. Liability of the appellant for the period April 2010 to December 2010:
The appellant contended that the liability for service tax should only be on Ms. Anita Sakhuja until March 2010, as her son Mr. Gautam Sakhuja became the proprietor thereafter. The Tribunal noted that the appellant continued to operate under the same registration number and received payments from SECL under the same business name. The appellant failed to inform the department about the change in proprietorship or amend the registration certificate. Therefore, the Tribunal held that the appellant was liable for the entire period up to December 2010.

4. Imposition of interest and penalties under Sections 77 and 78 of the Finance Act, 1994:
The Tribunal upheld the imposition of interest, citing the Supreme Court's decision in Pratibha Processors v. Union of India, which characterizes interest as compensatory for withholding tax payments. The Tribunal also upheld the penalty under Section 77, agreeing with the adjudicating authority's findings that the appellant failed to furnish records despite ample opportunities.

5. Eligibility for reduced penalty under Section 78 of the Finance Act, 1994:
The Tribunal accepted the appellant's submission for a reduced penalty under Section 78, as the appellant had paid the entire service tax and interest before the adjudicating authority's order. Section 78 provides for a reduced penalty of 25% if the tax and interest are paid within 30 days from the order's communication. The Tribunal held that the appellant was eligible for this benefit.

Conclusion:
The Tribunal modified the impugned order as follows:
1. Upheld the demand for service tax on rent-a-cab service along with interest.
2. Upheld the penalty under Section 77.
3. Reduced the penalty under Section 78 to 25% of the confirmed demand.
The appeal was allowed to the extent of the reduced penalty under Section 78. The order was pronounced in open court on 18.09.2024.

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