Tajobsindia (Senior Partner ) 01 November 2012

Service tax issue pertaining to the transporters bills

I have received PM from few members with the query about the service tax issue pertaining to the transporters bills.

The issue is largely because of the newly introduced Reverse Charge Mechanism applicable to Rent-A-Cab operators.

I am enclosing herewith (in PDF file format) the relevant notification and the section applicable in red color:

You are advised to check with your Chartered Accountants and act accordingly.

For simple understanding, it is as follows:

1. If the tour operator is Private Ltd or a Limited Company, then a transporter:

a. Private Limited or Limited Company will charge service tax and is payable by the tour-operator to the transporter.

b. If the transport operator is an individual or a partnership firm, then he cannot charge service tax and even if, he has charge the service tax you should deduct and settle transporter bills. You have to pay the service tax amount directly to service tax department under Reverse Charge Mechanism.

2. In case, the tour operator is a proprietorship or partnership firm, in such case, the transporter will charge service tax, i.e. payable by the tour-operator.

The gross service tax rate is 12.50% and abatement available to transporter is 60%, therefore, the tax charged by them is 4.94%.

I hope, the issue is clear now!.

Reply Follow

3 Replies

NARAYANAN.P.POTTY (ADVOCATE) 19 November 2012

Sir,

For rent a Cab operators the service Tax liability is as followws.w.e.f 01-.07-2012

From the Gross Value of receipt 60% abatement can take and Service Tax liability will be only for 40%.So the net Service Tax liability will be 4.94% (40% of 12.36) on Gross Value.

Under the Reverse Charge Mechanism the Service Tax liability should be shared between the Service provider and Service recepient as follows

When the transporter is a Pvt Ltd or Ltd company the Servive Tax liability is up on tour operator.

When the transporter is an Individual or partnership firm the service tax liability is sahred by transporter and tour operator in the ratio 60:40 ie 60% by the service provider and 40% by the service recepient.

Regards

Narayanan.P.Potty

Advocate

VINOD KAUL (SERVICE) 06 March 2014

CASE STUDY

A company has hired a MAXI CAB having All India Permit issued by RTA and having make TEMPO TRAX Model GAMA seating capacity 9+1 from Mr. JS owner of Taxi and Proprietor of MN Travels.

The owner drives the MAXI CAB himself during the day and for night a driver has been employed by him. Mr.JS owns only one taxi which he uses for occupation. The Vehicle is always in the possession of owner.

The MAXI CAB is utilized for carrying employees from factory to City and back daily and also as and when need arises for other factory work.

The terms on which taxi has been hired by the company include:

1) That Hire Charges shall be Rs.23000/- per month for 4000 Kms.

2) In case 4000 Kms. Is not travelled during a month, such shortfall shall be adjusted from the excess mileage covered in future month/s.

3) Based on 1. & 2. Above the payment to the owner is made on km basis.

4) The amount so given on km basis shall include all government taxes, duties, insurance and salary given to the driver.

5) That maintenance of the taxi shall be carried by the owner at his cost and expense.

Thus operating of MAXI CAB by the owner and hiring of same by the company on km basis is not in nature of ‘Rent-a-cab’ service as such no service tax is attracted under service tax rules. This can further be emphasized by taking into following grounds:

6) That the owner owns only one taxi which he uses for his occupation,

7) That owner drives the taxi himself or through his driver,

8) That taxi remains always in the possession of the owner,

9) That control of taxi remains always remains with the owner or his agent-driver.

10) That all taxes relating to the operation of taxi are being borne by the owner,

11) That maintenance of taxi is carried out by owner at his cost and expense

12) That company pays to owner on the basis of kilometers travelled.

13) The payments are made monthly to the owner.

14) That owner operates taxi for carrying employees and guests from BCPL factory to Bhopal/Mandideep and back daily and also for other work as required by the company.

On the basis of above the service provided by the owner is a case of ‘hire’ of taxi for operating transport service

The Tribunals in the past have pronounced that ‘Hiring out of vehicle’ is a Transport service outside the purview of the entry ‘Rent-a-cab service’.

Reference: case laws:-

C1. K.S.Gill Vs CCE, STO 2005 CESTAT 324

C2. S.L.Parmar Vs CST, STO 2010 CESTAT 234

C3. Surya Travels Vs CCE, STO 2008 CESTAT 360

Please advise whether the activity undertaken by the taxi owner is outside the ambit of section 65(91) of the Finance Act, 1994 and there shall be no liability on the company to pay service tax under Reverse charge mechanism under Notification No. 30/2012 dated 20/06/2012.