Pradeep Jain - Chartered Accountant

Query

(Manoj Agrawal) Posted On: 06 Sep, 2012

our company has hired motor vehicles on contract from individuals for commutation of employees between their residence to factory. The contrators are not registered with service tax deptt. hence nobody is charging service tax. Whether abatement of 60% of Gross amount charged can be availed for determination of value of taxable service and as a service receiver only 40% of service tax is payable on 40% of the gross amount charged ?

Mega Exemption Notification no. 25/2012-ST dated 20.6.2012 exempts Contract carriage. The relevant clause reads as follows:- “23. Transport of passengers, with or without accompanied belongings, by - (b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or” As per clause (m) to definitions given in the mega notification, definition of Contract carriage will be borrowed from Section 2(7) of Motor Vehicles Act, 1988 which reads as under:- "contract carriage" means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorised by him in this behalf on a fixed or an agreed rate or sum (a) on a time basis, whether or not with reference to any route or distance; or (b) from one point to another, and in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, and includes- (i) a maxicab; and (ii) a motorcar notwithstanding the separate fares are charged for its passengers;” So for availing exemption, the essential characters of contract carriage are as follows: 1. The vehicle should be engaged under a contract - whether expressed or implied. 2. The use of such vehicle as a whole for the carriage of passengers mentioned therein. 3. The contract is either on a time basis (whether or not with reference to any route or distance) or it is on destination basis (from one point to another) 4. The vehicle does not stop to pick up or set down passengers not included in the contract anywhere during the journey As your query is not clearly shows the contract description, so you have to see that your contract is covered under the above definition of contract carriage. If covered, it will be exempt from levy of service tax. If your contract is not covered under the above exemption, service tax will be payable on 40% of gross amount charged (Sl No. 9 of Abatement Notification No. 26/2012-ST) and 100% liability to pay service tax on service receiver under reverse charge mechanism as service provider is an individual and receiver is a company (sl. no. 7(a) of notification no. 30/2012-ST).

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