Service tax on rent-a-cab payment

Written by Vivek Sharma | Vivek Sharma | Manav Saneja | Updated: Jan 18 2013, 07:28am hrs
Queries on taxation and service tax liabilities, addressed by Vivek Sharma and Manav Saneja of Ernst & Young

We are in the business of trading in steel coils and use rent-a-cab services for our directors in Delhi. During 2012-13, we paid R525,000 to our cab vendor, which is a partnership concern, on account of rent-a-cab services received from them. In this regard, please let us know whether we are liable to pay service tax on the services under the current service tax regime. If yes, then what is the extent of liability to be borne by us Also, whether we are also required to obtain service tax registration

Under the erstwhile regime of taxation of services prior to introduction of negative list based on a positive list of services (as applicable prior to July 1, 2012), service tax on rent-a-cab service was payable by the service provider only.

However, with effect from July 1, Service tax liability arising on account of rent-a-cab services is required to be borne partially by the service recipient under the reverse charge mechanism, in cases where the services are rendered by an individual, HUF, partnership firm or an association of persons. Hence, you would be required to discharge service tax under reverse charge mechanism on rent-a-cab services received by you from cab vendors.

The extent of service tax liability to be discharged by you would depend upon whether cab vendor has claimed abatement on the value of services provided by them. In both situations, i.e., whether the cab vendor has claimed abatement or not, your liability would be 12.36% of 40% of total service value. Section 69 of the Finance Act, 1994 has made it mandatory for every person liable to pay service tax to register under the service tax. So, you would be required to obtain registration as a service recipient.

Tax on consultancy fees

We are in the business of manufacturing pharmaceuticals since 2004-05 and avail of certain management consultancy services from a consultancy in the USA every year since inception. We have not been discharging service tax on such services received from the consultancy. We have been informed that the service tax should be discharged on such services received by us from outside India since inception. Please let us know whether we are liable to discharge Service tax on consultancy services received and from when are we required to discharge service tax.

Under the erstwhile regime of taxation of services based on a specified list of taxable services, Section 66A of the Finance Act, 1994 provided that service tax on any taxable service provided by a non-resident or a person located outside India, to a recipient in India, is required to be discharged by the recipient of services under reverse charge mechanism. Accordingly your company shall be liable to discharge the service tax liability on management consultancy services from the US company.

Further, such liability will arise from 18 April 2006 i.e. the date of enactment of Section 66A of the Finance Act, 1994. Reliance in this regard may be placed on the judgment of the Supreme Court in the matter of Indian National Ship- owners Association (INSA) v. Union of India [2009] 18 STT 212 (Bom.)] as well as instructions issued by the Central Board of Excise and Customs (CBEC) to their field formations vide F. No. 276/8/2009-CX8A dated 26 September 2011. Accordingly, you would be liable to discharge the Service tax liability under reverse charge for the payments made for services received after 18 April 2006 only.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to [email protected]