Custom, Excise & Service Tax Tribunal
Prasanna Purple Mobility Solutions Pvt ... vs Cce Pune Iii on 11 March, 2019
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.I
APPEAL NO.ST/85708/14 & ST/86980/17
(Arising out of Order-in-Original No.PUN-EXCUS-003-COM-025-13-14
dated 21/11/2013 passed by the Commissioner of Central Excise &
Service Tax, Pune-III)
Prasanna Purple Mobility Solutions (P) Ltd., : Appellant
Prasanna Travels (P) Ltd.,
VS
Commissioner of Central Excise : Respondent
& Service Tax, Pune-III Appearance Shri.M.P. Joshi, Advocate for Appellant Shri.MP Damle, Asst. Comm. (AR) for respondent CORAM:
Hon'ble Shri S.K. Mohanty, Member (Judicial) Hon'ble Shri P Anjani Kumar, Member (Technical) Date of hearing: 13/11/2018 Date of decision: 11/03/2019 ORDER NO.
Per: P Anjani Kumar
1. M/s Prasanna Purple Mobility Solutions Pvt. Ltd., (formerly known as M/s Prasanna Bus Links Pvt. Ltd.) (1st appellant) and M/s.
Prasanna Travels Pvt. Ltd., (2nd appellant) are engaged in the activity of providing buses to M/s Maharashtra State Road Transport Corporation (MSRTC) and to M/s Pune Mahanagar Parivahan Mandal Ltd. (PMPML). The department was of the view that the services 2 Appeal No.ST/85708/2014 &86980/2017 rendered by the appellants were taxable under the category of "Supply of Tangible Goods" as defined under Section 65 (105) (zzzzj) of Chapter V of the Finance Act, 1994. Show-cause notices were issued to both the appellants and the same were confirmed by the Commissioner vide order No.PUN-EXCUS-003-Com-025-13-14 dated 21/11/2013, wherein, the Commissioner has confirmed a duty of Rs.1,10,24,2018/- on the appellant No.1 and a duty of Rs.9,02,233/- on the 2nd appellant, for the period April 2009 to March 2012, and imposed equal penalty under Section 78 of the Finance Act, 1994 and also imposed penalty under Section 77 of the Finance Act, 1944.
2. The appellant submitted that MSRTC & PMPML are providing a sovereign function and therefore, it is exempted from service tax in terms of Circular No.89/7/2006-Service Tax dated 18/12/2006. The appellant submitted that MSRTC & PMPML are operated buses under "State Carriage Permit" for public transport. The services provided by MSRTC & PMPML fall under the definition of "Tour Operator Service" as defined under 65 (120) (115) & 65 (105) (n) of Finance Act, 1994. The appellants activity comes under "Rent-a-cab scheme operator service" under Section 65 (91) of the Finance Act, 1994 as held by the following cases:
i) Deepak Transport Bus Service - 2012-TIOL-560-CESTAT-
MUM
ii) Shri H.M. Shanthappa - 2011-TIOL-1970-CESTAT-Bang
iii) Speedway Carriers Pvt. Ltd. - (stay Order No.ST/S/525/12/Cus 3 Appeal No.ST/85708/2014 &86980/2017 2.1 The appellant further submits that the adjudicating authority while confirming the demand under the category of tangible goods service has relied upon the judgment of Hon'ble CESTAT in the case of RS Travels - 2008-TIOL-1311-CESTAT-DEL but has not relied upon the judgment of the Mumbai Bench of the Tribunal in the case of Deepak Transport Bus (supra). The order passed by the jurisdictional CESTAT Bench is binding on the adjudicating authority. Therefore, the services undertaken by the appellant be considered as "rent-a-cab scheme operator service" under Section 65 (105) (o) and abatement from the taxable value as per the Notification No.1/2006-ST dated 01/03/2013 may kindly be allowed to the appellant.
2.2 The learned Counsel further submits that as there was no deliberate intention on the part of the appellant to evade payment of duty therefore, penalty should not be imposed. Learned Counsel has also relied upon the following cases to support his claim that services rendered by them fall under rent-a-cab services:
i) Petronet LNG Ltd. - 2016 (46) STR 513 (Tri-Del)
ii) S.K. Kareemun - 2016 (42) STR 988 (Tri-Bang)
iii) Harjinder Singh - 2014 (33) STR 437 (Tri-Del) 2.3 Learned Counsel for the appellants submits that as per Section 65 (105) (zzzzj), supply of tangible goods service "to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances;" therefore, in order to get covered under the definition 4 Appeal No.ST/85708/2014 &86980/2017 of "supply of tangible goods service" the activity must qualify criteria specified in the definition in terms of Hon'ble Supreme Court decision in the case of Bharat Sanchar Nigam Ltd. Vs. UOI - 2006 (2) STR 161 (SC), the activity will be liable to VAT. Hon'ble Supreme Court has held the criteria to be followed. The said criteria is reproduced herein under:
There must be goods available for delivery;
There must be a consensus ad idem as to the identity of the goods;
The transferee should have a legal right to use the goods, consequently all legal consequences of such use including any permissions or licenses required therefore, should be available to the transferee;
For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the state - viz. a "transfer of the right to use" and not merely a license to use the goods;
Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others".
2.4 He also submits that in terms of CBEC Circular No.334/01/2008-
TRU dated 29/02/2008 in case of transfer of right to use along with possession and effective control, VAT is payable and no service tax needs to be discharged. He submits that therefore, it is beyond any doubt that the category, viz., supply of tangible goods service covers 5 Appeal No.ST/85708/2014 &86980/2017 supply of goods for use without transferring right of possession and effective control over such goods. In the instant case, the buses are effectively under the control of MSRTC and in terms of the agreement:
a) In every bus, MSRTC is appointing a conductor and such conductor is to collect fares from the passengers. The bus is run under the command and control of the conductor. He decides and indicates when and where the bus would stop and go.
b) It is the right of MSRTC to specify the bus specifications as to its door, flooring, curtains, seats and colour. MSRTC has the right to display advertisement on buses.
c) MSRTC has the sole discretion to decide the routes on which the bus is to be operated.
d) The drivers of the buses are required to follow the instructions of the authorities of MSRTC.
3. Learned Authorised Representative for the department has reiterated the findings of Order-in-original.
4. Heard both sides and perused the records of the case.
5. Ongoing through the agreement between MSRTC & PMPML, it is seen that;
i) Buses will be hired for a period of 3 years with assured 341 days
ii) Buses will be operated approximately per day on monthly average basis at the rate of Rs.18.00 for 550-599 KMs, Rs.16.36 6 Appeal No.ST/85708/2014 &86980/2017 for 600-649 KMs and Rs.16.21 for 650 and above KMs per day on monthly average basis.
iii) MSRTC will provide Conductor with tickets. The Conductor of MSRTC shall collect charges.
iv) The General Manager (Traffic) of MSRTC shall identify the routes on which hired bus shall be deployed.
v) The fleet owner has to provide the bus with driver possessing valid driving licenses with his wages and other allowances.
vi) The fleet owner shall keep the buses road worthy and clean. The fleet owner shall supply lubricants, oil, tyres and tubes, spare parts, etc. required for running of buses including maintenance of the buses at his own cost.
vii) The fleet owner shall be responsible for damage or loss caused to the hired bus during the period of agitation, accident and operation of the buses.
viii) The fleet owner shall be duty bound for payment of road tax and other taxes including service tax.
ix) The fleet owner shall ensure the insurance of third party risk.
x) The hired buses will be parked at the respective depots at the risk of the fleet owner provided space is available at the depot. Otherwise, the bus owner has to make his own arrangement for parking.
xi) The fleet owner shall have no claim or right whatsoever on stage carriage permit which would be obtained by MSRTC. 7
Appeal No.ST/85708/2014 &86980/2017
xii) No private bus under the hire agreement with MSRTC will be allowed to be sold/ownership changed without prior permission of MSRTC during the tenure of contract. In case it is established that a bus had been sold or the ownership changed without prior permission of MSRTC during this period, the payment for that period along with Security deposit will stand forfeited.
xiii) Under no circumstances a hired bus will be diverted by the fleet owner for a personal use or again of any other business during the contract period of the MSRTC. 5.1 We find that other agreements are also similar in nature. The brief issue to be decided in this appeal is to decide whether the activity of providing services on hire by the appellant to MSRTC & PMPML would fall under the category of "supply of tangible goods service" or alternatively it can be classified as rent-a-cab service as claimed by the appellants. We find that a show-cause notice has been issued to the appellants classifying the services rendered by them as "supply of tangible goods service". The learned Commissioner has held that the services provided by the appellants is supply of tangible goods. The Commissioner points that the definition of tangible goods service is an inclusive definition and not an exclusive definition. Therefore, the goods mentioned therein are not exhaustive. The essential ingredients required to be satisfied for classification of activity into supply of tangible goods service are following:
8
Appeal No.ST/85708/2014 &86980/2017
i) The supplied material shall be goods as defined under Section 2 (7) of the Sale of Goods Act, 1930, read with Section 65 (50) of the Act.
ii) The right of possession and effective control is not transferred.
iii) In case of transfer of right possession the VAT is payable to the State Government.
iv) The goods must be tangible.
5.2 The Commissioner further found that all the above essential ingredients are satisfied as follows:
i) Risk or responsibility whether statutory or financial lies with notices
ii) Intention to possess and full control of the buses remains with notices
iii) After the operation hours the arrangement to park the buses remains with notices
iv) Even if the buses are parked in the premises of the clients the same are parked at the sole risk of notices
v) All liabilities whether accidental or arising out of statutory violations are on account of notices
vi) Insurance of the vehicles is done by notices
vii) Their clients do not have intention to possess the vehicles;
and
viii) No VAT is paid in the said transactions.
9
Appeal No.ST/85708/2014 &86980/2017 5.3. Primary issue to be looked into in this case is whether the appellants have transferred the right of possession and effective control. In terms of the contract, it is seen that the appellants are obliged to keep the bus in a good condition after the particular day's work with bus is over; they are also expected to look after the maintenance and service of the bus; even in the case where bus has been parked in the respective depots of MSRTC & PMPML, they are parked at the risk of the owner; MSRTC has sole discretion to identify the routes which hired buses shall be deployed; the fleet owners shall supply lubricants, oil, tires and tubes, spare parts, etc required for running of buses including maintenance of the buses at his own cost; the fleet owner must ensure that the insurance policy in force; taxes other than passenger tax, toll tax are to be borne by the fleet owner; fleet owner shall have no claim or right whatsoever on stage carriage permit which would be obtained by the MSRTC; under no circumstances, the hired buses will be diverted by the fleet owner for the personal use or again of any other business during the contract period of the MSRTC; fleet owner shall ensure MSRTC's monograph on sides of the bus; fleet owner shall not transfer or otherwise alienate the vehicles during the period of agreement. On a reading of the terms of the agreement, it is seen that the fleet owner has the right of possession and effective control only for name sake. The right of possession, if any, envisaged in terms of the contract is only for the proper up keep and maintenance of the vehicle and not for using the same for any benefits to him. This is more in the nature of responsibility rather than right. In our standing, the right of possession and effective control should entail in the gainful use or 10 Appeal No.ST/85708/2014 &86980/2017 deployment of buses by the fleet owner during the time, in which they are not plying for the purpose of MSRTC during the period of contract. As long as the fleet owner cannot use them for gainful deployment, by no stretch of imagination it can be said that effective control is with the fleet owner. Therefore, going through the terms of the agreement it is to be construed that effective control is transferred. Therefore, we of the opinion that and such circumstances it cannot be said that right of possession and effective control is retained with the fleet owner. Therefore, such supply of buses by the appellants to MSRTC & PMPML is in the nature of supply of tangible goods.
6. Learned Counsel for the appellant has submitted that in view of the Tribunal judgment, the services rendered by them would better fall under the category of rent-a-cab service rather than supply of tangible goods. We find that this bench while deciding the stay application of the appellants, vide final order dated 28/08/2014 have observed that the Hon'ble Punjab & Haryana high Court in the case of Kuldeep Singh Gill - 2010-TIOL-436-HC-P-H-ST and Madras High Court in the case of Secretary Federation of Bus Operators Association of Tamil Nadu - 2003-TIOL-33-HC-MAD-ST have followed the classification of "running or hiring of bus or cab services under the category of rent-a- cab service. The bench did not accept the contentions of the learned Authorised Representative that the demand is for the period from April 2009 to March 2012 and during this period a new entry was created making "supply of tangible goods for use" as a taxable service. The bench observed that they did not find any changes made in the law necessitating a new classification. The new service of supply of 11 Appeal No.ST/85708/2014 &86980/2017 tangible goods for use has not been carved out of 'rent-a-cab service'. Therefore, the bench observed that the impugned demand classifying the service under the category of supply of tangible goods for use service is not prima facie sustainable in law. We also find that CESTAT Bangalore in the case of HM Shanthappa -2011-TIOL-1970 has expressed the opinion that "4. After considering the submissions, we have not found prima facie case for the appellant. The nature of activity undertaken by them coupled with the terms of the relevant contract indicates that they were providing their buses to the KSRTC for hire charges. Prima facie, the activity would be covered by the definition of 'rent-a-cab service' given under Section 65 of the finance Act, 1994. In any case, this service is more specific than "supply of tangible goods service" referred to by the learned Consultant. We are also not impressed with the plea of limitation and that of financial hardships at this stage. The latter plea is not substantiated either.
7. It could be argued that the above two orders are interim in nature and as such opinion expressed cannot be taken as final. However, we find that the said principle has been followed by the Tribunal in other cases also. We find that this bench in the case of Deepak Transport Bus Service - 2012 (27) STR 357 (Tri-Mumbai) and in the case of Jayashree Takalkar - 2014-TIOL-1582-CESTAT-MUM and Transport Solution Group - 2014 (33) STR 683 have taken a similar stand relying on the decision of Punjab & Haryana High Court in the case of Kuldeep Singh Gill case (supra) and Madras High Court in the case of Secretary Federation of Bus Operators Association (supra).
8. We further find that in the case of S.K. Kareemun - 2016 (42) STR 988 T-B have taken a stand that the providing buses on hire to APSRTC comes under the ambit of rent a cab service under Section 65 12 Appeal No.ST/85708/2014 &86980/2017 (91) and 65 (105) (o) of Finance Act, 1994. The facts of the case are very much similar to the impugned case before us. In this case the Tribunal has also discussed the other options like 'Tour Operators' etc but came to the conclusion that the activity of giving buses on Hire to Road Transport Corporations falls under Section 65 (91) and 65 (105)
(o) of Finance Act, 1994. Relevant findings of the coordinate Bench in the case of S.K. Kareemun (supra) are as under.
5.6.2. The definition of rent-a-cab scheme and definition of relevant expressions before 2007 in the Finance Act, 1994 were as under:
"According to Section 65(20) "cab" means a motor cab or maxi cab.
65(91) "rent-a-cab scheme operator" means any person engaged in the business of renting of cabs. Section 65(105) defines "taxable service" as any service provided or to be provided:
(o) to any person, by a rent-a-cab scheme operator in relation to the renting of a cab.
After 2007, the definition of cab reads as under:
Section 65(20) of Finance Act, 1994 : A 'cab' means (i) a motor cab, or (ii) a maxi cab, or (iii) any motor vehicle constructed or adapted to carry more than 12 passengers excluding the driver, for hire or reward :
Provided that the maxi cab referred to in sub-clause (ii) or motor vehicle referred to in sub-clause (iii) which is rented for use by an educational body imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre, shall not be included within the meaning of cab.
According to Section 65(91) of Finance Act, 1994, 'rent a cab operator' means any person engaged in the business of renting of cabs.
According to definition of taxable service, any service provided or to be provided to any person by a rent-a-cab operator in relation to the renting of a cab."
As can be seen from the definitions given above, prior to the year 2007, the rent-a-cab service was applicable only 13 Appeal No.ST/85708/2014 &86980/2017 to cabs and maxi cabs. Finance Act, 1994 did not define a motor cab or a maxi cab. It also simply said that rent-a- cab scheme operator means any person engaged in the business of renting of cabs. Rent-a-cab as such was not defined. In such a situation two views are possible. One view that is possible is that the meaning of rent-a-cab expression has to be taken as understood in common parlance. Otherwise the provisions of Section 75 which explains the scheme for renting of motor cabs can be taken into account for the purpose of determination as to whether an activity amounts to renting of motor cabs. Basically Section 75 of Motor Vehicles Act deals with only motor cabs and motor cycles. We have already seen from the definition given above that motor cab is limited to the vehicles which can carry not more than 6 persons excluding the driver for hire or reward. Therefore when words 'motor cab' are used, it means under the Motor Vehicles Act only a vehicle meant for carrying passengers for hire or reward. In the case of maxi cab also same terms have been used. Therefore it is possible to take a view that prior to 2007, for interpreting the definition for service tax purpose, definitions under the rent-a-cab scheme can be considered in case of disputes.
5.6.4 However initially when the definition was introduced, there was a reference to rent-a-cab scheme under Motor Vehicles Act and subsequently when it was implemented, the reference to rent-a-cab scheme under Motor Vehicles Act was omitted even prior to 2007. It has to be noted that the rent-a-cab scheme under Section 75 of Motor Vehicles Act is applicable only to motor cabs and motor cycles and maxi cabs are not included. This could be one of the reasons why the reference to Motor Vehicles Act was omitted since the rent-a-cab scheme as envisaged in Motor Vehicles Act was applicable only to motor cab. If the intention of the law makers was to apply the rent-a-
cab scheme as envisaged in Motor Vehicles Act for the purpose of levy of service tax, necessarily they had to provide a clause that for the purpose of this clause, motor cabs and maxi cabs have to be considered as covered under rent-a-cab scheme envisaged in Motor Vehicles Act. In the absence of such a provision, prima facie, on an analysis of the definitions, a layman's conclusion would be (without knowing the law laid down by judiciary) would be that the definition in service tax has to be read independently of the rent-a-cab scheme envisaged in Motor Vehicles Act.
5.6.5 After 2007, the definition of rent-a-cab scheme for the purpose of levy of service tax was modified and under clause (iii) any motor vehicle constructed or adapted to carry more than 12 passengers excluding the driver was also included in the definition. Any Motor Vehicle which can carry more than 12 passengers is called as omnibus in the Motor Vehicles Act. The rent-a-cab scheme 14 Appeal No.ST/85708/2014 &86980/2017 envisaged in Section 75 of Motor Vehicles Act does not cover both maxi cab, motor car and omnibus. Therefore even if we take a view that because the word cab prefixed by motor and maxi is still a cab and therefore the definition of rent-a-cab scheme of Motor Vehicles Act can be applied even if specific exclusion or inclusion is not made, after 2007 it becomes very clear that the intention of the law makers for the purpose of levy of service tax was not to follow rent-a-cab scheme envisaged in the Motor Vehicles Act. Therefore two views are possible regarding this issue prior to 1-6-2007 but not after 1-6- 2007.
5.6.6 Therefore without considering the judicial precedents or decisions when we consider the legal provisions independently, a conclusion that arises is that the law makers for the purpose of levy of service tax did not contemplate application of rent-a-cab scheme as envisaged in Motor Vehicles Act for the purpose of levy of service tax.
5.6.7 This conclusion is further re-enforced by the proviso to the meaning of cab under Section 65(20) of Finance Act, 1994 which provided that the maxi cab referred to in sub- clause (ii) or motor vehicle referred to in sub-clause (iii) which is rented for use by an educational body imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre, shall not be included within the meaning of cab. This is a totally new provision and has nothing to do with the Motor Vehicles Act and clearly shows that the law makers intended to take a totally different route for the purpose of levy of service tax and there was no intention to apply provisions of rent-a-cab scheme for the purpose of service tax. In fact it restricts the meaning of cab. It has also to be noted that the meaning of cab in Section 65(20) of Finance Act, 1994 refers to hire or reward and rent in the same sense. In the provisions the word used is rented for educational institutions and in the meaning the words used are hire or reward. The Motor Vehicles Act also does not differentiate between renting and hiring. This is because maxi cab and motor cab have been defined as the motor vehicles for hire or reward. It has to be noted that in the case of an omnibus the words hire or reward are missing. In the scheme for rent-a-cab, the scheme is applicable only to motor cabs which would show that the scheme is applicable only to motor cabs, the meaning of which itself according to Motor Vehicles Act is a motor vehicle for hire or reward. There is a clear distinction in the Motor Vehicles Act between vehicles which are exclusively meant for renting or for hiring for reward and motor vehicles which can be used personally as well as for other purpose. Where a definition is exclusively meant for motor vehicles which can be hired or rented, the definition itself provides for it. Therefore when words like 15 Appeal No.ST/85708/2014 &86980/2017 maxi cab and motor cab are used it means it is applicable only to vehicles which are meant for hire or reward. 5.6.8 It can be seen that even though the relevant Section provides for Central Government making the Rules for rent-a-cab scheme, words hire or reward have been used everywhere else. Therefore even under Motor Vehicles Act legislative intention is that rent and hire or reward are interchangeable. Therefore when we look at the definitions in the Motor Vehicles Act, the relevant provisions of the law and the provisions in Finance Act, 1994 the following conclusions emerge :
i. The intention of the Legislature to apply provisions of Motor Vehicles Act relating to rent-a-cab scheme to Finance Act, 1994 is non-existent.
ii. The words rent and hire have been used interchangeably. iii. By adding maxi cab and motor vehicles with capacity to carry more than 12 passengers, Finance Act, 1994 clearly deviates from the Motor Vehicles Act which makes rent-a- cab scheme applicable only to motor cab and motor cycles and does not even cover maxi cabs leave alone motor vehicles equivalent of omnibuses.
iv. The fact that the definition includes provision for exclusion of certain type of rent-a-cab operations from the purview of service tax also shows that there is no intention to apply rent-a-cab scheme under Motor Vehicles Act to Finance Act, 1994.
v. Prior to 1-6-2007 two views are possible. This conclusion is supported by the fact that Hon'ble High Court of Uttarakhand concluded that rent-a-cab scheme envisaged under the Motor Vehicles Act was intended to be applied for rent-a-cab service.
9. The above cited judgment of the Tribunal Bangalore distinguished the ratio of High Court of Uttarakhand's Judgment in Commissioner vs Sachin Malhotra -- 2015 (37) S.T.R. 684 (Uttarakhand). The said order of Tribunal Bangalore has been upheld by the Hon'ble Supreme Court in the case of M Venket Reddy -2016 (44) STR J 279 (SC). Therefore, we find that finality has been attained in this issue. Therefore, we have no doubt in accepting the appellant's contention that services rendered by them inasmuch as supplying buses to MSRTC & PMPML o 16 Appeal No.ST/85708/2014 &86980/2017 hire basis attracts duty under rent-a-cab service and they are eligible for abatement as applicable.
10. The appellants have not made out any point on the issue of limitation. The appellants were arguing on different classifications of the service they have rendered. However, they have not come forward to pay service tax under any one of them. Therefore, we find that extended period is invocable. As regards penalty, looking in to the fact that the transaction was with public sector undertakings and there were different views on the issue, we think that one need to take a lenient view as regards penalties by invoking the provisions of Section
80. Accordingly the penalties imposed under various Sections against the appellants are set aside by invoking the provisions of Section 80 of Finance Act, 1994.
11. In view of the above, the impugned order is set aside and remanded back to the original authority to re-examine the classification of the service provided by the appellants in view of the discussion above and to quantify the service tax liability. Needless to say all the appellants shall be given reasonable opportunity to present their case before adjudicating the matter afresh by the original adjudicating authority.
(Pronounced in Court on 11/03/2019) (S.K. Mohanty) (P Anjani Kumar) Member (Judicial) Member (Technical) PJ