Service Tax Threshold Limit Calculation Excludes Exempt Consideration: CESTAT

Gurjant Singh Beant Singh Vs Commissioner of Central Excise And Service Tax (CESTAT Chandigarh)

Service Tax Threshold Limit Calculation Excludes Exempt Consideration; No Assessment for Services in Absence of Renting in Hire Contracts

Introduction: The case of Gurjant Singh Beant Singh vs. Commissioner of Central Excise and Service Tax (CESTAT Chandigarh) revolves around critical aspects of service tax, including the calculation of the threshold limit and the classification of services. The appellants, who provided buses to the Punjab Road Transport Corporation (PRTC), faced challenges related to the applicability of service tax. This article provides an in-depth analysis of the case, the key arguments presented, and the final decision by CESTAT Chandigarh.

Background: The appellants, Gurjant Singh and others, entered into contracts with PRTC, providing one bus each. They were remunerated based on a per-kilometer basis and were responsible for expenses such as diesel, maintenance, and driver salaries. The Department contended that the appellants were providing “Rent-a-Cab Service” and had not paid the applicable service tax.

Threshold Limit Calculation: The first aspect addressed in the case was the calculation of the threshold limit. Each appellant’s turnover was examined, taking into account the exemption provided under Notification No. 06/2005 dated 01.03.2005. The notification exempted 60% of the gross receipt from service tax, as per Notification No. 01/2006 dated 01.03.2006. The Department had accepted this principle for other individuals who had leased their buses to PRTC. The appellants argued that their turnover fell below the threshold limit based on this calculation.

Classification of Services: The second aspect dealt with the classification of services. Reviewing the agreements, it was evident that the appellants had provided their buses to PRTC on a hire basis and received remuneration per kilometer. There was no arrangement for renting. The Hon’ble High Court of Uttarakhand, in the case of R.S. Travels, had held that when there is a hire contract and no actual renting of a cab, the assessment for services related to rent-a-cab does not apply. Thus, the classification of services was not applicable in this context.

Penalties: Since the appeals succeeded on both counts, the issue of penalties did not arise.

Conclusion: In this case, CESTAT Chandigarh clarified two significant aspects of service tax. Firstly, the calculation of the threshold limit took into account the exemption provided under Notification No. 01/2006, excluding 60% of the consideration. As a result, the appellants’ turnover fell below the threshold limit, absolving them from service tax liability.

Secondly, the classification of services was carefully examined. The agreements between the appellants and PRTC revealed a hire arrangement rather than renting of cabs. This distinction was crucial, as it determined whether the appellants were liable for service tax.

Overall, the case emphasizes the importance of correctly calculating the threshold limit and understanding the classification of services under service tax regulations. It serves as a reminder to businesses and taxpayers to seek clarity on these aspects to avoid unnecessary tax liabilities and penalties.

The final decision by CESTAT Chandigarh favored the appellants, setting aside the impugned orders and providing clarity on these critical service tax issues.

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

1. Shri Gurjant Singh and others who have provided one bus each to Punjab Road Transport Corporation have filed these appeals:

2. The appellants entered into different contracts with M/s PRTC; they have provided one bus each to M/s PRTC; the appellants were paid remuneration on per-kilometre basis; the appellants had to bear the expenses on account of diesel, repair and maintenance, salary of bus drivers etc; the remuneration paid was for kilometre-basis. The Department was of the opinion that the appellants have provided “Rent-a-Cab Service’ and have not discharged the applicable service tax on the same; show cause notices were issued to the above appellants and were confirmed by various OIOs which were upheld by different OIAs as cited above. Hence, these appeals.

3. Shri Jatinder Mohan, learned Consultant appearing for the appellants makes two-fold submissions; one being that the authorities have not considered the fact that the turnover of each of the appellants was well within the exemption limit provided under Notification No. 06/2005 dated 01.03.2005 taking into account the fact that 60% of the gross receipt is exempted from payment of service tax in terms of Notification No.01/2006 dated 01.03.2006; he submits that the Department themselves have accepted this stand in respect of other persons who have similarly hired out their buses to M/s PRTC; he submits that Deputy Commissioner, Central Excise Division, Chandigarh vide orders dated 22.03.2012 and Asst. Commissioner , Patiala vide order dated 31.10.2007 have discharged the show-cause notices issued to the appellants therein.

4. The second leg of the submission by the learned Consultant was that the service provided by the appellants will not qualify to be “Rent­a-Cab Service” as proposed in the show-cause notices. Learned Consultant also submits that in the facts and circumstances of the case, penalty cannot be imposed. He relies upon the following:

• Ashok Kumar Mishra- 2017 (12) LCX 0014 (Tri. Del.)
• Visvanath Mishra- 2019 (22) GSTL 271 (Tri. All.)
• S. Travels- 2015 (38) STR 3 (Uttarakhand)
• Federation of Bus Operators Association of Tamil Nadu- 2006 (002) STR 0411 (Mad.)
• Grasim Industries Ltd.- 2005 (183) ELT 0123 (SC)
• Uni Deritend Ltd.- 2012 (25) STR 475 (Tri. Mumbai)
• S. Travels- 2008 (12) STR (Tri. Del.)
• Sri Sai Krishna Travels- 2010 (18) STR 220 (Tri. Bang.)
• Sunil L.Parmar- 2010 (19) STR 584 (Tri. Ahm.)
• Muniruddin-2013 (31) STR 136 (All.)

5. Shri Raman Mittal, learned Authorized Representative for the Department reiterates the findings of the impugned order.

6. On hearing the rival contentions and having perused the records of the case, we find that the gross value of the taxable service rendered by each of the appellants is less than the threshold limit of Rs.10 Lakhs as prescribed under Notification No.06/2005-ST dated 01.03.2005 after giving allowance to the exemption for 60% of the gross receipt in terms of Notification No.01/2006-ST dated 01.03.2006. We find that the Departmental authorities have considered this principle and accepted the contention of the appellants in the cases cited above. We further find that Principal Bench of CESTAT, in the case of Ashok Kumar Mishra (supra) held that for the purpose of calculating the threshold limit, 60% of the consideration exempt, vide Notification No.01/2006, should not be taken into account. We find that if 60% of the consideration received by the appellants is excluded, they fall under the exempted category and as such, are not liable to pay any tax. Therefore, we find that the appeals succeed on this count. Ongoing through the agreements relied upon by the appellants, we find that the appellants have simply provided their buses to M/s PRTC on hire and have received remuneration on per-kilometre basis; there is no arrangement of renting. Wefind that Hon’ble High Court of Uttrakhand in the case of R.S. Travels (supra) held that when there is a contract of hire and there is no renting of a cab, there is no question of the assessee being assessed in respect of services rendered in connection with rent-a-cab as there is no renting at all. Therefore, we are of the considered opinion that the appeals succeed on the issue of classification of services also. When we find that the appeals succeed on both counts, the question of penalties does not arise.

6. In view of the above, we find that the impugned orders are not sustainable and are liable to be set aside. We do so and allow all the seven appeals.

For calculating threshold limit exempt consideration should not be taken into account & when there is a contract of hire and there is no renting of a cab, there is no question of the assessee being assessed in respect of services rendered in connection with rent-a-cab as there is no renting at all

(Pronounced on 30/08/2023)