Contract carriage passenger transport exemption bars service tax under reverse charge for employee and school bus hiring

Hiring buses to transport employees and school children on fixed routes for a per-day consideration was treated as transport of passengers in a contract carriage under the Motor Vehicles Act, 1988. On that basis, the activity fell within the applicable exemption for transport of passengers by contract carriage, and service tax was not payable under reverse charge mechanism for the period covered by the notifications and retrospective validation. The later amendment limiting the exemption to non-air-conditioned vehicles did not alter the position for the relevant period, and the demand with consequential penalty could not be sustained.

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Issues: Whether service tax was payable under reverse charge mechanism on the hiring of buses for transporting employees and school children, or whether the activity was exempt as transport of passengers in a contract carriage.

Analysis: The Tribunal examined the nature of the arrangement and the relevant exemption notifications. It noted that the buses were engaged for transporting passengers on fixed routes for hire on a per-day basis, which answered to the statutory concept of a contract carriage under the Motor Vehicles Act, 1988. The Tribunal further held that the activity fell within the scope of the exemption for transport of passengers by contract carriage, and that the later amendment restricting the exemption to non-air-conditioned vehicles did not alter the position for the period in question. The Tribunal also relied on the earlier exemption framework and the retrospective validation granted by the Finance Act, 2011, read with the 2009 exemption and the TRU circular, to hold that no service tax was leviable on such transportation activity.

Conclusion: The demand of service tax and the consequential penalty could not be sustained, and the assessee succeeded on the issue.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: Transportation of passengers in a contract carriage for non-tourism, non-conducted tour, non-charter and non-hire purposes falls within the statutory exemption framework and is not liable to service tax, including under reverse charge mechanism, for the period covered by the applicable notifications and retrospective validation.

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