Service Tax on Car Lease

[Kaustubh Karandikar]

XYZ Ltd. taking car on lease from an Individual and give it to the management employees for official use. This is part of their perquisites and mentioned in their contract. The individuals are paid lease rent by XYZ on Voucher and they don’t charge service tax to XYZ. During Excise & Service Tax audit by the department, they are asking XYZ to pay Service tax under reverse charge on the same under the category Rent – a – cab. Any defence possible?

[KASTURI SETHI]

Dear Sir,

The Department's object is correct. There are case laws in favour of the department on this issue. If you go through the Chapter of Rent-a-Cab, you will be convinced that the Audit is right.

[KASTURI SETHI]

Dear Sir,

Also peruse the legal meaning of, 'car', 'lease' 'cab' and phrase,'Rent-a-cab'.

[Ganeshan Kalyani]

Sir, rent-a-car service was under reverse charge mechanism vide Notification no. 30/2012-ST. Therefore, in my view, department is correctly asking you for the service tax payment.

AI Summary

Reverse charge on rent-a-car: lessee may carry service tax liability where individual lessors do not charge tax.
Service tax exposure arises where a company takes a car on lease from an individual and provides it to employees as an employment perquisite; the department contends the lessee must discharge tax under the reverse charge mechanism for rent-a-car services where the lessor did not charge service tax, prompting assessment and audit risk for the recipient.