Bus Services for Transporting Employees and School Children Qualify for Service Tax Exemption Under Entry 23(b) of Notification: CESTAT [Read Order]
CESTAT ruled that Employee and school bus services are not taxable under service tax when used as contract carriage
![Bus Services for Transporting Employees and School Children Qualify for Service Tax Exemption Under Entry 23(b) of Notification: CESTAT [Read Order]](https://images.taxscan.in/h-upload/2025/08/01/2071840-bus-services-transporting-employees-school-children-qualify-service-tax-exemption-notification-cestat-taxscan.webp "Bus Services for Transporting Employees and School Children Qualify for Service Tax Exemption Under Entry 23(b) of Notification: CESTAT [Read Order]")
The CESTAT held that bus services used by Century Pulp and Paper to transport its factory employees and school-going children are exempt from service tax under Entry 23(b) of Notification No. 25/2012-ST, as the vehicles were used as contract carriages and not for tourism or hire. Century Pulp and Paper, the appellant, is engaged in the manufacture of writing and printing...
The CESTAT held that bus services used by Century Pulp and Paper to transport its factory employees and school-going children are exempt from service tax under Entry 23(b) of Notification No. 25/2012-ST, as the vehicles were used as contract carriages and not for tourism or hire.
Century Pulp and Paper, the appellant, is engaged in the manufacture of writing and printing paper, paperboard, and rayon-grade pulp. During a service tax audit covering the period from July 2012 to November 2015, the department found that the company had entered into agreements with various travel agencies to provide buses for employee and school transport.
The company paid a fixed daily charge for the buses and also reimbursed the cost of fuel and other operational expenses.
The department issued a show cause notice alleging that the service amounted to “renting of motor vehicles designed to carry passengers,” which became taxable under reverse charge as per Notification No. 30/2012-ST, effective from July 1, 2012. The original adjudicating authority confirmed the demand for service tax along with interest and penalties.
The Commissioner (Appeals) later set aside the demand for the extended period, remanding the matter for the normal period alone. Century Pulp and Paper then challenged the remaining demand before the CESTAT.
The appellant's counsel argued that the bus services fall under the definition of “contract carriage” and were used solely for transporting employees and school children, not for tourism or charter purposes. They further argued that such services are specifically exempt under Entry 23(b) of Notification No. 25/2012-ST. The counsel also pointed out that similar contracts had been held exempt by the Tribunal in other cases.
The department's counsel argued that contract carriage services hired under such arrangements were taxable under reverse charge, relying on the Allahabad High Court’s ruling in Anil Kumar Agnihotri v. CCE, Kanpur.
The two-member bench comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the buses were not hired for tourism or private charter but were used solely for point-to-point transport of passengers under fixed contracts.
The tribunal held that these services qualified for exemption under Entry 23(b) and that service tax could not be demanded. The tribunal accordingly set aside the confirmed demand and allowed the appeal.
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