Service Tax - Whether ‘car lease scheme' of providing vehicles to employees would be regarded as ‘service'
THIS was a question answered recently by the Authority for Advance Rulings.
The question posed was:
"The Advance Ruling is being sought with respect to the levy of service tax on the proposed car lease scheme (of providing vehicles to employees) under Section 66B of the Finance Act, 1994, i.e. whether the scheme proposed to be introduced by the Applicant would be regarded as a ‘service' under the Finance Act, 1994 and thus, being subject to service tax."
The Scheme: Under the scheme, the applicant (employer) was to provide vehicles to its employees during the employment. The applicant was to hire the cars from the car leasing companies and under the scheme those cars would be made available to such employees who are firstly continuing to be the employees of the applicant and secondly who accept the option to have the car for their personal as well as official use and in lieu of this, the company was to charge the said employees the same amount which the applicant would be paying to the car leasing company from whom they hire the car.
Taxability: It is an admitted position that the service which is provided by the car leasing company to the applicant is being taxed under the regime of the service tax. There is no dispute over this. The question posed is as to whether the amount which the applicant charges to its employees for this use of the vehicles is subject to service tax.
Section 65B(44) (b) reads as:-
Service means "any activity carried out by a person, for another person for consideration, and includes a declared service, but shall not include a provision of service by an employee to the employer in the course of or in relation to his employment."
The Authority for Advance Rulings noted that the above definition stipulates two conditions for the exception:-
1. in the course of employment.
2. in relation to employment.
The AAR noted that there can be no dispute that the service of "making available" a car to the employee is being rendered by the applicant.
The AAR found that,both the conditions in clause (b) of Section 65B (44)are fulfilled. Firstly, it is in the course of the employment because the agreement between the applicant and employee clearly suggests that this will be during the course of his employment only. Second condition is also satisfied that it is only because the employee is in service and in that sense the service becomes in relation to his employment.
Since, both these conditions are fulfilled, the Authority had no doubts that this will not amount to ‘service'.
The Departmental representative made a plea that this task of ‘making available' a car for personal and official use as well would invite the service tax.
The AAR did not agree with this contention. In its opinion, whether the car given for official use, for personal use or use for both will not be making any difference.
Isn't the exception under Section 65B(44)(b) for service provided by an employee to the employer? Does it cover the service provided by the employer to the employee?
But why should an employer get a car on lease and give it to its employee and then collect the same lease charges from the employee? Well, that's not a Service Tax problem, it's an Income Tax problem.
Netizens may remember, recently the DGCEI had issued a Modus Operandi Circular that the forfeiture of the security deposit by the employee when leaving his job, would amount to providing service by the employer and is taxable. Please see - 08 12 2015