Rent a Cab service
Introduction :-
As per Section 16 of the of the CGST/HGST Act, 2017, every registered person shall, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. However, on this availment of input tax credit (ITC), there are exceptions prescribed under Section 17(5) of the CGST/HGST Act, 2017, which provides that:
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
(iii) rent-a-cab, life insurance and health insurance except where —
(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
As per Section 17(5), Rent a cab expenses is not allowed except if RP is in the business of transport (Refer B) or same is obligatory as per the Factory Act etc.
Definition of the Rent A Cab :-
“rent-a-cab” has not been defined in the CGST Act, 2017
where statutory meaning of any term/phrase has not been provided words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning
Resort to rigid interpretation in terms of scientific and technical meanings should be avoided in such circumstances, as has been held by the Hon’ble High Court of Allahabad in the case of Godrej Consumer Products Ltd. v. CIT [2018] 93 taxmann.com 360.
In the general senses, cab refers to a vehicle which has been taken on hire/rent, along with driver, for going from one place to another.
The dictionary meaning of the Rent A Cab is almost same as above.
Since the Tax on the service is first charged vide Financce Act 1994 (Service Tax Act), so we can go for the meaning of the Rent A Cab which is as below.
Section 65(91) – “rent-a-cab” operator means any person engaged in the business of renting of cabs.”
– Section 65(20) – “Cab means –
(i) a motorcab, or
(ii) a maxicab, or
(iii) any motor vehicle constructed or adapted to carry more than twelve passengers, excluding the driver, for hire or reward:
This also implies that it includes renting of motor cars, motorcabs, maxicabs, minibuses, buses and all other motor vehicles which are designed to carry passengers, irrespective of their capacity to carry passengers.
Hire or renting are same :-
- In the Case of CST v. Vijay Travels [2014] 51 taxmann.com 72/48 GST 540 (Guj.), the Hon’ble High Court of Gujarat, observed as under:
Words and Phrases – Rent – It means the act of payment for the use of something -Renting means a usually fixed periodical return, especially, an agreed sum paid at fixed intervals by a person for any use of the property or car – It is also the amount paid by a hirer to the owner for the use of the property or a car – On facts, Legislature not having made distinction between renting and hiring for levy of Service Tax, Rent-a-Cab Scheme Operator liable therefore.
Conclusion :
it clearly stands established that the services of the Contractor for hiring of buses/cars for transportation of employees qualify as ‘rent-a-cab’ services. Further, if same is obligatory for an employer to provide to its employees under any law for the time being in force, so Input tax credit is not allowed in the case of Rent A Cabe service, firstly we have to pass the test of rent a cab, if same is comes within the preview, ITC is not allowed.
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