Renting of Buses - What Service?
RECENTLY AG Audit has made out an Audit objection pointing out loss of huge service tax revenue on account of inaction by the departmental officers. The Audit objection is about non-payment of service tax by persons renting/hiring buses to the State Road Transport Corporations (like APSRTC). As the Audit considers itself the ultimate authority on law, makes strange interpretation of statutes. It is no guess that most of the pending departmental cases in various Commissionerates are as a result of Audit objections and their non settlement by Audit.
Coming to the issue, this time the Audit has taken a stand that the activity of renting buses to State Road Transport Corporations would fall under Business Auxilliary Service- under the category of promotion or marketing of service provided by the client. The interpretation of the Audit is that by renting their buses, such persons are promoting the service of Road Transport Corporation! As usual without studying the nature of contract and terms of contract the Audit has categorized the activity under BAS, and obtained a list of such persons from APSRTC; then made an audit point from 1.07.2003 onwards involving huge loss of revenue and the ball is thrown into the department's court. The department without going into the merits of the audit objection and without bothering to analyse the issue properly started issuing notices left right and centre.
One of the victims of such mindless notices brought us a copy of the agreement he entered with APSRTC and sought for our advice. Some of the terms of the agreement are as under:
++ The owner shall give Vehicle No._________ , Model _________ having seating capacity of 49+2
++ The owner shall make available the vehicle on all days except two days in a calendar month for maintenance of the vehicle.
++ The Corporation assures operation of KMs equal to at least to the daily KMs offered for the route assigned multiplied by 27 days in a month………
++ It is mutually agreed that the guaranteed kilomiterage will be proportionately reduced when the vehicle is not made available on any day or days.
++ It is mutually agreed that distance operated for making payment will be reckoned from the appointed place of plying the vehicle.
++ The Corporation shall pay the owner at agreed rate of Rs.________ per operated kilometer towards hire charges. The hire rate will remain unchanged till the tenure of agreement period provided the above rate shall be subject to revision depending on the increase or decrease of HSD Oil price.
++ The owner shall keep the bus road worthy………….
++ The Corporation shall not be responsible for any damage of loss caused to the vehicle hired during the period of agitations, accidents etc.
++ The owner shall provide a driver/drivers with valid driving license…….
++ The owner shall pay PF and other statutory contribution for the driver engaged by him.
++ The owner shall ensure payment of wages to the drivers engaged by him as per the statutory rates.
++ The owner shall submit the claim twice in a month …………………………………duly certified by Traffic Supervisor of the Depot with regard to the distance operated during the period.
++ The Corporation shall provide a conductor for the operation of service with necessary equipment for issuing tickets to the passengers as well as luggage.
++ It is agreed that it shall be the right of the Corporation to collect fare or luggage or freight charges…………….
If the terms of agreement are examined, it is clear that the private persons are giving buses on hire along with driver and get hire charges on kilometer basis. The activity is akin to renting of cabs. It is not known on what basis, Audit has concluded that these services as falling under BAS. The departmental officers who deal in the service tax subject every day also failed to appreciate the issue properly and proceeded on to issue notices thereby burdening service providers with unsustainable demands and forcing them to spend money on hiring consultants.
The learned departmental officers would have confirmed that demands, but fortunately the CBEC has already given a clarification way back in 2007 - vide letter F.No. dt. 2.08.2007 - that activity of giving buses on hire on a fixed rate per kilometer travel, would be covered under renting of cab (bus) service and liable for payment of tax from 1.06.2007. This clarification was issued in reply to reference made on similar issue in connection with hiring of buses by Himachal Road Transport Corporation under kilometer scheme.
And in some places this was sought to be classified under “Tour Operators Service” - the CESTAT in 2009-TIOL-1726-CESTAT-MUM had granted stay.
The issuance of this sort of demands despite the existence of clarification from government is nothing but harassing the trade forcing them to spend huge amounts on litigation. Ultimately all the demands issued under BAS have to be dropped for mis-classification in view of the Board circular wasting tones of paper, valuable time of departmental officers and of course the service providers.
The gainer is of course the consultant who will make some fast buck, thanks to Audit.