The present service has been one of the most disputed services in terms of taxability, valuation, sub contract etc amongst assessees. Its scope has often been confused with contract carriages and also, the service has found itself in double taxable regime with Cenvat problems over the years.
Renting of motor vehicle for transport of passenger is a big service arena and involves numerous small service providers engaged in the said service. The renting of motor cab is said to be a service when the act of making available such motor vehicle is more than mere provision of motor vehicle against fixed hire consideration.
“motorcab” has the meaning assigned to it in clause (25) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
The scope of the definition of service is very wide so as to cover wide range of activities under its ambit and accordingly, rent-a-cab services will be considered as a taxable service.
Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:
Tax Collection of Service
Interest and penalties on such service
Provision relating to Negative List
Rent-a-cab services are not included in the Negative List and hence, it is a taxable service.
Provisions relating to exemptions
Small Service Provider
Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.
Import of Technology
Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.
To Foreign Diplomatic missions and their personnel
Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.
Services by TBI or STEP
Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted
Services provided to SEZ
Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.
Clause 9 – Services provided to an educational institution, by way of, transportation of students, faculty and staff are exempt.
Provisions relating to Valuation and Abatement
Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which service tax should be levied.
In respect of Rent a cab scheme operator services, no specific provision for determination of taxable value has been provided. However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Rent a cab scheme operator services is to be determined in terms of provision of Section 67 read with the prescribed rules.
Notificaiton No. 26/2012-ST provides 60% abatement from the gross amount charged is available to the Rent a cab Scheme Operator.
Provisions relating to Cenvat Credit
Cenvat Credit is available in respect of Rent a cab scheme operator services when no abatement is taken by him. However, when abatement is availed, credit has been restricted vide Notification No. 26/2012 (except that of other rent a cab operator).
Provisions relating to point of taxation
Normally in case of renting of motor vehicle, the charges are recovered on per kilo meter basis or per hour basis. The invoice is prepared after calculating the difference between the starting point and ending point or on the basis of numbers of hours used. The point of taxation for transportation of passenger will be determined by Rule 3 of Point of Taxation Rules 2011. As per Rule 3 of Point of Taxation Rules, 2011, the point of taxation shall be-
Time when the invoice for the service provided or to be provided is issued. As per rule 4A of Service Tax Rules, invoice shall be issued within 30 days from the date of completion of service. In case invoice is not issued within 30 days from the completion of service, the point of taxation shall be the date of completion of service.
In case where the person providing the service receives payment before the time specified above, the date of receipt of payment shall be the point of taxation.
Provisions relating to reverse charge
Entry No. 7 of notification 30/2012-ST dated 20-6-2012 provides that in case of rent a cab scheme operator services, tax will be payable by the recipient of services as well as specifies the person liable to pay service tax in case of service of rent a cab scheme operator services. It provides that-
This provision is not applicable to services provided to a person who is engaged in similar line of business.
The service provider must be an individual, HUF, proprietary firm or partnership firm including Association of persons
Service recipient shall be business entity registered as body corporate.
Under reverse charge mechanism, the liability to pay Service Tax is shifted 100% on service recipient in cases where service provider (viz. rent a cab operator) is availing abatement under Notification No. 26/2014.
Under reverse charge mechanism, the liability to pay Service Tax is shifted 40% on service recipient in cases where service provider (viz. rent a cab operator) is not availing abatement and balance 60% remains liability of provider.
Other Important aspects
In the case of Kanaiyalal Pokhraj Kalal Commissioner of Service Tax, Ahmedabad  (Ahd. – CESTAT), it was held that Renting of vehicles or mini trucks meant for transport of goods cannot, by any stretch of imagination, be considered as rent-a-cab services.
In the case of Commissioner of Central Excise, Allahabad Surya Bhan Tripathi (New Delhi – CESTAT), it was held that Hiring of ambulance is not liable to service tax under head rent-a-cab service.
In the case of Ravi Tours & Travels Commissioner of Central Excise, Noida (New Delhi – CESTAT), it was held that where service provider had collected service tax from customers but had neither taken registration nor paid service tax, adjudicating authority was justified in disallowing assessee’s claim for rebate/deduction of expenses.
In the case of Imperia Motor Transport v. Commissioner of Central Excise, Meerut (New Delhi – CESTAT), it was held that Letting out of cabs on demand basis is not liable to service tax under head rent-a-cab service.