Finology
Finology

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


A recent amendments made in the Union Budget 2014 in regard to rent a cab service - service tax liability, cenvat credits and reverse charge, not only ignite the confusions that was prevailing already in the industry but also increases the chances of litigation. As the law has been made so much complex, many will err in interpreting the same.

Lets us get to the bottom of the law and try to decipher the same.

Amendments

The following amendments in notification no. 26/2012-ST has been made vide notification no. 8/2014-ST dated 11th July'2014 which would be effective from 1st October'2014 -  

Sl no.

Description of taxable service

Percentage

Conditions

9

Renting of motorcab

40

i) 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;

(ii) CENVAT credit on input service of renting of motorcab has been taken under the provisions of the CENVAT Credit Rules, 2004, in the following manner:

(a) Full CENVAT credit of such input service received from a person who is paying service tax on forty percent of the value; or

(b) Up to forty percent CENVAT credit of such input service received from a person who is paying service tax on full value;

(iii) CENVAT credit on input services other than those specified in (ii) above, has not been taken under the provisions of the CENVAT Credit Rules, 2004.]

9A

Transport of passengers, with or without accompanied belongings, by-
a. a contract carriage other than motorcab.
b. a radio taxi.

Transport of passengers, with or without accompanied belongings, by a contract carriage other than motorcab.

40

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

Note: It is to be noted that the radio taxis has been excluded from the negative list and it comes into the effect from the date when the Finance Bill (no. 2) receives the assent from the President.

In the absence of the definition of motor cab in the Finance Act, we would refer to Motor Vehicles Act, 1988. As per section 2(25) of the Motor Vehicles Act, 1988, motor cab means " any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward".

Thus for the motor vehicles which is adapted to carry more than six passengers excluding driver, we have to refer to serial no. 9A otherwise serial no. 9.

Person providing the service of renting of motor cab -

As per serial no. 9 - in order to claim abatement of 40% on renting of motor cab following condition is to be satisfied -

Condition (i) - Service provider cannot claim cenvat credit on input and capital goods.

Condition no.(ii) - A person providing the service of motorcab is made entitled to a availment of cenvat credit on input services to a certain extent in case the (SP)  hires the vehicles from another person. Lets us try to understand with the help of an example.

A rented a motor cab to B for Rs. 10,000 and B rented a motor cab to C  for Rs. 15000.

A does not claim abatement and pay service tax on full value i.e. 12.36% * 10,000 = Rs. 1236. In such a scenario A would be able to claim cenvat credit on inputs, capitals goods and input services.

Option for B

(1) B can claim the cenvat credit of Rs. 495 (1236*40%) and pay service tax on 40% only i.e. 15000*40%*12.36% = 742  (for service rendered to C). However, B cannot claim cenvat credit on inputs and capital goods as per condition no. (i).

(2) If B claim full cenvat credit on input service i.e. Rs. 1236 and on inputs and capital goods, It would not able to take abatement and had to pay service tax on full value i.e. 15000*12.36% = Rs.1854. 

Condition no.(iii) - It talks about the other input services which the service provider receives apart from service receives in condition no. (ii). Here also, cenvat credit on other input services cannot be claim in order to take abatement of 40%.

Person providing the service of renting of contract carriage and radio taxis -

Person providing the services of contract carriage (carrying more than 6 passengers) and radio taxis, service provider has to refer serial no. 9A for claiming abetment. For claiming the abatement of 40% only one conditions is to be satisfied, no cenvat credit can be claim on inputs, capital goods and input services. If the service provider claim cenvat credit on inputs, capital goods and input services, abatement cannot be claim and has to pay service tax liability on full.

Reverse charge mechanism -

Notification no. 30/2012-ST has been amended vide notification no. 10/2014-ST dated 11th July 2014  - The following amendments would be effective from 1st oct'2014.

Sl no.

Description of a service

Percentage of service tax payable by person providing the service

Percentage of service tax payable by the person receiving the service

7.

(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.

NIL

100%

(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.

50%

50%

Taking the above example -    

A rented a motor cab to B for Rs. 10,000 and B rented a motor cab to C ltd.  for Rs. 15000.

As "A" is renting the motor vehicle to "B" who is engaged in the similar line of business, no reverse charge mechanism will apply. However, in case of B providing renting of motor vehicle service to C ltd., reverse charge mechanism would apply as per notification no. 30/2012-ST as amended.

  • If A charges full service tax liability i.e. @12.36% on Rs. 10,000, then B can take the abatement of 60% i.e. 12.36%*40%*15000 = Rs. 742 provided the B cannot claim cenvat credit on capital goods and inputs and only claim cenvat credit on input service upto 40%. In such a scenario, B doesn't need to pay service tax liability and whole service tax liability has to be paid by C Ltd. as per serial no. 7(a) i.e. Rs. 742 under partial reverse charge mechanism. B can claim the refund of cenvat credit under rule 5B of Cenvat Credit rules, 2004.
  • If B claims full cenvat credit on inputs, capital goods and input services, then the service tax liability arises is 15000*12.36% = Rs. 1854, no abatement would be available. In such a scenario, B service tax liability would be 1854*50%= Rs. 927 and C ltd. service tax liability would also be Rs. 924 as per serial no. 7(b).   

Radio taxi slammed by Service Tax

Service Tax base has been widened by including the radio taxi whether air conditioned or not in the service tax net vide notification no. 06/2014-ST dated 11th July'2014 amending notification no. 25/2014-ST. Thus, on transportation of passengers by radio taxis, service tax would be levied on it. The same has been brought into the effect from the date when the Finance Bill received the assent from the President.

The definition of radio taxi reads as under:

"radio taxi means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS)"

Thus the taxi with the GPS or GPRS and a two way radio communication would be liable to service tax.  

Conclusion

It is very difficult to understand what's the intention of the Government in making such a complex law - revenue generation?? Difficult to say anything.

Contact Details -

CA Harsh Gadodia

Gadodia & Associates

1, R.N.Mukherjee Road, Martin Burn House,

3rd Floor, Room no.-301, Kolkata-700001

Mobile - 9830752489

E-mail - harshgadodia12@gmail.com


 

Published by

Harsh Gadodia
(indirect Tax Consultant)
Category Service Tax   Report

1 Likes   75 Shares   21885 Views

Comments


Follow


Popular Articles




Follow taxation Exam20 Book Book Book caclubindia books


CCI Articles

submit article

Stay updated with latest Articles!




update