Input Tax Credit, a word which has perturbed many professionals and businesses since the inception of GST. New definitions under GST have unsettled the earlier decisions on CENVAT / MODVAT credit provisions and the GST advance rulings have further aggravated such issues.
In this article we have made an attempt to cover all aspects related to ITC of renting a bus in the course and furtherance of business. As per provisions of Section 17(5)(b) of the pre-amended CGST Act, 2017, ITC shall not be available in respect of
(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;
The word “cab” is not defined under GST Act 2017; it is where the ambiguity starts. Since GST has consolidated catena of taxes levied by the Centre & State into a common, fungible tax, it would not be just to ignore the definition of the “Cab” in pre GST regime.
Before the negative list based service tax regime (i.e. before 01.07.2012) the word cab was defined under Finance Act, 1994 as under:
Section 65(20) – “Cab means –
(i) a motor cab, or
(ii) a maxi cab, or
(iii) any motor vehicle constructed or adapted to carry more than twelve 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.
As per the said definition even bus was considered a “cab”.
However, on or after 01.07.2012 (i.e. negative list based regime), any person providing service of transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods, subject to certain exemptions, was considered as declared service as per Section 66E of Finance Act 1994. Thus tax was levied on renting of all types of motor vehicles (i.e. motor cab, maxi cab as well as any other motor vehicle (e.g. bus)). Hence the definition of “cab” was no longer relevant and thus was not defined under Section 65B inserted w.e.f. 01.07.2012. Hence after 01.07.2012, the word “cab” has to be understood without any reference to the definition contained u/s 65(20).
This implies that that we are back to square one even after discussing the definition of “cab” under the Service Tax regime. It is pertinent to mention here that it is a well settled principle of interpretation that in absence of any statutory definition under the law in question, one has to follow the definition in the market parlance. Maxwell in the book “Maxwell on Interpretation of Statutes” has elaborated this principle by saying that in dealing with matters relating to general public, statutes are presumed to use words in their popular sense rather than their narrowly legal or technical sense.
The apex court in its landmark judgment of Ramavatar Budhiprasad v. Assistant Sales Tax Officer AIR 1961 SC 1325 held that the word must be construed not in any technical sense but as understood in common parlance. The Judgment reads that the word ‘vegetables’ in item 6 of Schedule II of the C.P. and Berar Sales Tax, 1947, must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. It has not been defined in the Act and being a word of everyday use it must be construed in its popular meaning ‘that sense which people conversant with the subject matter with which the Statute is dealing would attribute to it. Therefore the term ‘vegetables’ is to be understood as denoting class of vegetables which are grown in a kitchen garden or in a farm and are used for the table. Consequently ‘betel leaves’ are not vegetables and would not be exempt from sales tax under item 6 of Schedule II of C.P. and Berar Sales Tax Act, 1947.
Hence we proceed to examine as to what is a cab. It merits referring to how the term Cab has been defined in various dictionaries:
|Website Wikipedia||1. Cab (locomotive), the driving compartment of a locomotive
2. Cab car
3. Cabin (truck), an enclosed space in a truck where the driver is seated
4. Cabriolet (carriage) (obsolete), a type of horse-drawn carriage
5. Causeway Bay Station, Hong Kong; MTR station code CAB
6. Civil Aeronautics Board
7. Constructions Aeronautiques du Bearn, former French aircraft manufacturer
8. Controller anti-lock brake, see Anti-lock braking system
9. NATO reporting name for the Lisunov Li-2 aircraft
10. Taxicab, a type of vehicle for hire with a driver
11. Tractor unit of an articulated lorry, known in Britain as an artic cab
|Oxford dictionary||1. A taxi.
2. The driver’s compartment in a lorry, bus, or train.
|Merriam-webster dictionary||1. a light closed carriage pulled by a horse
2. a vehicle that carries paying passengers : taxicab
3. the covered compartment for the engineer and the controls of a locomotive or for the operator of a truck, tractor, or crane
|Cambridge dictionary||A taxi (= car with a driver whom you pay to take you where you want to go) the separate part at the front of some vehicles in which the driver sits.|
Further, as per the Motor Vehicle Act, 1988, motorcab and maxicab includes only a motor vehicle construed or adapted to carry not more than twelve passengers excluding the driver for hire or reward.
We can deduce from the definition supra that bus is not covered by the definition of cab and also when we book a bus for travelling, do we say that we booked a cab? The answer to this rhetorical query cannot, but be in the negative.
The recent advance ruling in the case of M/s. YKK India, after considering the literal interpretation of word cab, has held that renting of bus tantamount to renting of cab. This is nothing but an absurd interpretation of law which is absolutely pro revenue.
Moreover, it is important to note that said ruling has become redundant after the implementation of CGST Amendment Act, 2018 as relevant provision of Section 17(5) ibid has been substituted only on renting or hiring of motor vehicles which are for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver).
Post amendment the of the CGST Act, 2017 w.e.f. 1 Feb 2018, it is clear that ITC in case of renting of motor vehicle having approved capacity of more than thirteen persons is allowed.
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