In a recent ruling, the Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that vehicle leasing activity is not considered a service and is therefore exempt from service tax, noting that the leased vehicle was under the exclusive control of the service receiver.
In an appeal against the order dated 05.07.2016 by the Commissioner (Appeals), Service Tax-II, Mumbai, the central issue pertains to whether the appellant’s activity of leasing cars should be classified as a ‘service’ or as a ‘deemed sale’ under Article 366 (29A) of the Indian Constitution. The audit department of Service Tax observed that the appellant was engaged in rent-a-cab services but had not paid the applicable Service Tax on the income generated from such services.
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As a result of this audit observation, the department initiated proceedings against the appellant, culminating in an adjudication order dated 06.02.2014. In this order, the original authority ruled that the activity conducted by the appellant should be treated as a deemed sale, thus making it subject to Sales Tax/VAT rather than Service Tax. Dissatisfied with this outcome, the department appealed the decision before the Commissioner (Appeals), who ruled in favor of the Revenue. The appeal held that the appellant’s activities constituted a service, thereby making them liable for Service Tax.
Upon review, the tribunal closely examined a purchase order dated 23.07.2008, issued by the appellant to its customer, M/s Jenifer Browne. The tribunal observed that the vehicle leased by the appellant was under the exclusive control of the service receiver, who was responsible for paying sales tax on the car’s lease rental. Further scrutiny of the purchase order and associated documents revealed that the appellant had no control over the leased vehicle, reinforcing the view that this was a deemed sale, not a service.
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A two-member bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) found no merit in the impugned order, which had upheld the adjudication demands against the appellant. Consequently, the tribunal set aside the impugned order and ruled in favor of the appellant, concluding that the activities should be classified as a deemed sale, exempted from Service Tax, given the appellant’s fulfillment of VAT obligations.
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