S.tax on motor cars hire for transportation of employees ?
This query is : Resolved
09 May 2013
We as a company provide facility to our employees for their transportation from office to home and vise-versa for which we use motor cars of one of our group company who charge us in RS. per KM during the month.
Our group company is not in business of rent a cab but it is in the retail business.
My question is..
Whether our group company is liable to charge service tax on the invoice raised by them.? if yes then whether they can claimed abatement of 60% which is available on rent a cab services?
Our group company is not in business of rent a cab but it is in the retail business.
My question is..
Whether our group company is liable to charge service tax on the invoice raised by them.? if yes then whether they can claimed abatement of 60% which is available on rent a cab services?
10 May 2013
As a business entity you are liable to pay service tax on reverse charge system after the abatement of 60%.
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11 May 2013
Dear Gaurav,
Your group company should charge ST on the provision of service of Renting of Motor vehicle by taking abatement of 60% of Value.
Reverse charge is not applicable to your situation as both Service provider as Service receiver is company.
Arvind 9322368699
Your group company should charge ST on the provision of service of Renting of Motor vehicle by taking abatement of 60% of Value.
Reverse charge is not applicable to your situation as both Service provider as Service receiver is company.
Arvind 9322368699
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13 May 2013
Thanks for your reply.
I agreed that reverse charge is not applicable to us.
But as i mentioned in my question that our group company is not in the business of rent a cab/renting of motor vehicle, then whether our group company can claim abatement of 60%?
Because as per the definetion of rent a cab operation services- it means a person who is in the business of providing cabs on rent. on the same lines renting of motor vehicle may also have the same meaning
Please suggest
With Regards
Gaurav Jindal
I agreed that reverse charge is not applicable to us.
But as i mentioned in my question that our group company is not in the business of rent a cab/renting of motor vehicle, then whether our group company can claim abatement of 60%?
Because as per the definetion of rent a cab operation services- it means a person who is in the business of providing cabs on rent. on the same lines renting of motor vehicle may also have the same meaning
Please suggest
With Regards
Gaurav Jindal
22 July 2025
This is a nuanced query involving Service Tax on inter-company motor car rentals for employee transportation, particularly when the provider (group company) is not in the business of renting vehicles.
Let's break it down:
✅ Key Points of Your Case:
Service Receiver: Your company (corporate entity)
Service Provider: Group company (also a corporate entity, not engaged in rent-a-cab business)
Service Rendered: Provision of motor vehicles (cars) for employee transportation, charged on a per km basis.
Doubt: Whether your group company is liable to charge Service Tax, and can it claim abatement (60%)?
🔹1. Is Service Tax Applicable?
Yes, Service Tax is applicable under the taxable category of "Renting of motor vehicle designed to carry passengers" (prior to GST, under Negative List regime – Section 66D).
Even if your group company is not in the business of renting cabs, the occasional or ancillary activity of renting vehicles for consideration qualifies as a taxable service.
🔸 Circular No. 96/7/2007-ST clarified that renting of vehicles with or without chauffeurs, whether or not done by a rent-a-cab license holder, is taxable under service tax.
🔹2. Reverse Charge Applicability?
No, Reverse Charge Mechanism (RCM) is not applicable here since both provider and recipient are body corporates.
✅ RCM applies only when the provider is an individual, HUF, firm, or AOP and recipient is a company or LLP.
Hence, the group company must charge and pay service tax in full.
🔹3. Can the Group Company Claim 60% Abatement?
This is the crux of your question.
Abatement of 60% under Notification No. 26/2012-ST (Entry 9) is allowed only if the provider satisfies the conditions, including:
Not availing CENVAT credit on inputs, capital goods, and input services.
Providing taxable service of "Renting of motor vehicle" designed to carry passengers.
🔸 However, to claim this abatement, the provider does not necessarily have to be in the “business” of renting vehicles.
It is sufficient if they are rendering the service of renting motor vehicles and follow the abatement conditions.
🔹 Case Law Support:
In Commissioner v. Vayu Seva Tours and Travels (CESTAT), it was held that even non-rent-a-cab operators can avail abatement if they comply with conditions.
Let's break it down:
✅ Key Points of Your Case:
Service Receiver: Your company (corporate entity)
Service Provider: Group company (also a corporate entity, not engaged in rent-a-cab business)
Service Rendered: Provision of motor vehicles (cars) for employee transportation, charged on a per km basis.
Doubt: Whether your group company is liable to charge Service Tax, and can it claim abatement (60%)?
🔹1. Is Service Tax Applicable?
Yes, Service Tax is applicable under the taxable category of "Renting of motor vehicle designed to carry passengers" (prior to GST, under Negative List regime – Section 66D).
Even if your group company is not in the business of renting cabs, the occasional or ancillary activity of renting vehicles for consideration qualifies as a taxable service.
🔸 Circular No. 96/7/2007-ST clarified that renting of vehicles with or without chauffeurs, whether or not done by a rent-a-cab license holder, is taxable under service tax.
🔹2. Reverse Charge Applicability?
No, Reverse Charge Mechanism (RCM) is not applicable here since both provider and recipient are body corporates.
✅ RCM applies only when the provider is an individual, HUF, firm, or AOP and recipient is a company or LLP.
Hence, the group company must charge and pay service tax in full.
🔹3. Can the Group Company Claim 60% Abatement?
This is the crux of your question.
Abatement of 60% under Notification No. 26/2012-ST (Entry 9) is allowed only if the provider satisfies the conditions, including:
Not availing CENVAT credit on inputs, capital goods, and input services.
Providing taxable service of "Renting of motor vehicle" designed to carry passengers.
🔸 However, to claim this abatement, the provider does not necessarily have to be in the “business” of renting vehicles.
It is sufficient if they are rendering the service of renting motor vehicles and follow the abatement conditions.
🔹 Case Law Support:
In Commissioner v. Vayu Seva Tours and Travels (CESTAT), it was held that even non-rent-a-cab operators can avail abatement if they comply with conditions.
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