Contract carriage passenger transport exemption defeats reverse charge service tax on non-tourism employee and school bus transport.

Transportation of employees and school children by buses arranged on point-to-point, agreed terms was treated as contract carriage passenger transport and therefore fell within the service tax exemption for non-tourism contract carriage services. The reverse charge notification applied only where the underlying renting/service was taxable, so no reverse charge liability arose on exempt transportation. The discussion also relies on the exemption framework, the later restrictive amendment, the clarificatory circular, and retrospective validation to support the same position. On that basis, the service was exempt from service tax and no tax demand or penalty could survive.

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Issues: Whether service tax was payable under reverse charge mechanism on buses hired for transportation of employees and school children, or whether the activity was covered by the exemption for contract carriage transportation.

Analysis: The applicable reverse charge notification covered renting of motor vehicles designed to carry passengers, but only where the underlying service was taxable. The transportation activity in question was examined with reference to the exemption under the mega exemption notification for transport of passengers by a contract carriage, excluding tourism, conducted tour, charter or hire. The meaning of contract carriage under the Motor Vehicles Act, 1988 was considered, and the factual arrangement showed that the buses were taken for point-to-point transportation of employees and school children on agreed terms and not for tourism, conducted tour, charter, or hire service. The earlier exemption framework, the subsequent amendment restricting the exemption, the clarificatory circular, and the retrospective validation of exemption for contract carriage transportation were also relied upon to support the same legal position.

Conclusion: The activity was exempt from service tax and no tax demand or penalty could survive.

Final Conclusion: The impugned order was set aside and the appeal succeeded in full.

Ratio Decidendi: Transportation of passengers in a contract carriage for non-tourism point-to-point movement falls within the service tax exemption and cannot be subjected to reverse charge demand when the underlying service is not taxable.

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