CA Priyesh Agrawal
The only thing permanent in the world is “Change”. Government each year announces budget for coming financial year, under which Government changes taxation laws , which are major source of finance to Government. Through this article we would like to bring to the kind attention of all my professional friends about a small change made by Government at the time of announcement of Financial Budget (No. 2) 2014, which went unnoted by my friends and various companies, of which include listed companies as well. However we working in field of Service Tax had already informed our clients about this since its inception and had created certain disputes as well. Hope the reading will help you all in your professional endeavors.
There are many companies, which use motor vehicles for transportation of its employees to/from factory/offices, in the process majority of companies’ hires motor vehicles like mini bus, omni bus, cars, etc. for the purpose. Since July 2012, in Negative List Regime this services are also covered under Section 68(2) of The Finance Act, 1994 (hereinafter referred as “ The Act”) vide Notification 30/2012 ST dated 20/06/2012 which was read as under –
Part I of said notification, Clause A (v) –
“(v) provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose 2[or security services] or service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory;”
Part II of said notification, Table –
|S.No.||Description of a service|
No Percentage of service tax payable by the person providing service
Percentage of service tax payable by any person liable for paying service tax other than the service provider
(a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business
(b) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non-abated value to any person who is not engaged in the similar line of business
The above table brings in a situation where a service can fall under both reverse charge mechanism and joint charge mechanism as well. Reverse Charge shall be applicable only when the service provider claims abatement else joint charge mechanism would come in play.
Further the abatement to above service is allowed vide Notification 26/2012 ST dated 20/06/2012 which was read as under –
|Sl.No.||Description of taxable service||Percent- age||Conditions|
|9||Renting of any motor vehicle designed to carry passengers||40||CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004|
Thus w.e.f. 01/07/2012 if a person being Individual, HUF, Partnership firm, AOP provides renting of motor vehicle designed to carry passengers service to a company for transportation of its employees and was claiming the benefit of abatement was not required to pay service tax as his services would fall under reverse charge.
In summary we can say that if assesse is renting car, muv, suv, omni bus, mini bus, etc. to a company was not required to pay service tax provided he claimed abatement.
Thus following the above law assesse and companies were paying service tax over years and till date many a company’s follows the same procedure. Thus this forced us to write this article because a minor change in law by Government during Finance Act (No. 2), 2014 using budget notification was noticed by many of us. Below here we are discussing the same amendment.
Budget Notification 08/2014 ST dated 11/07/2014 amended Notification 26/2012 ST dated 20/06/2012 (w.e.f. 01/10/2014) and the abatement which was available to all the motor vehicles designed to passenger had been curtailed and was made limited to “Renting of Motor Cab”.
What is Motor Cab?
The Provisions of The Finance Act, 1994 and rules made thereunder had not yet defined the word “motor cab”. Thus for serving the purpose we need to refer Motor Vehicle Act, 1988, which defines it as –
“motorcab” means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward”
Thus from above definition of motor cab it is clear that abatement under service tax shall be available to motor vehicles having capacity to carry six persons excluding driver. Thus abatement is not available for motor vehicles like omni bus, mini bus, bus, etc.
Since abatement under Notification 26/2012 ST dated 20/06/2012 is not available to omni bus, mini bus, bus, etc. w.e.f. 01/10/2014 it shall be liable to be taxed at full rate of service tax as applicable from time to time. Further reverse charge shall not be applicable to this case as abatement is not available. It would thus fall under Joint Charge and both the service provider and recipient shall had to pay service tax to the extent specified in Notification 30/2012 ST dated 20/06/2012.
Thus from the above discussion it is clear that by just substituting some words Government had made changes which had major impact. Further an additional information – Joint Charge is of 50%-50% in this case under Notification 30/2012 ST dated 20/06/2012 as amended by Notification 10/2014 ST dated 11/07/2014 with effect from 01/10/2014.
In summary – Service by way of renting of motor vehicle like omni bus, bus, etc. by a specified person to a company shall be liable to be taxed at full rate of Service Tax and 50% of the tax shall be collected and paid by service provider and balance 50% shall be paid by service recipient.
(Author is a CA Based at Raigarh (Chattisgarh) and is Associated with Priyesh & Associates,Chartered Accountants )