By TIOL News Service

MUMBAI, NOV 12, 2015: MUCH before the Central Government had enacted a legislation to bring "Radio Taxis" into the ambit of Service Tax, the DGCEI had already made an attempt at it a couple of years earlier via a SCDNand proposed to classify the service under, rub your eyes, "Supply of Tangible Goods for use" Services.

But before we come to what all happened to the much-radioed case, here is some dope.

The JS (TRU) letter D.O.F. No. 334/15/2014-TRU dated 10 th July 2014 issued after presentation of the Union Budget 2014-15 mentioned thus -

2. Measures to widen the tax base:

2.1.2 Service tax is proposed to be levied on services provided by radio taxis or radio cabs, whether or not air-conditioned [section 66D (o)(vi)]. The abatement presently available to rent-a-cab service would also be made available to radio taxi service, to bring them on par. A definition of radio taxi is being included in the exemption notification No.25/2012-ST. Service tax on radio taxi services will come into effect from a date to be notified later, after the Finance (No.2) Bill, 2014 receives the assent of the President.

That date was 01.10.2014 as notified by Notification no. 18/2014-ST dated 25.08.2014.

Prior to this date, the definition of 'radio taxi' made its appearance in notification 25/2012-ST dated 20.06.2012 by amending notification 6/2014-ST dated 11.07.2014.

Now, to the DGCEI case.

The appellants have registered themselves as Fleet Taxi Operator or Radio Taxi Operator under the specific provisions of the State government law and are providing services in the city of Mumbai, Delhi, Bangalore and Hyderabad. The model of business is appellant owns the permit for operating Fleet Taxis. Under an agreement with various drivers, the said taxis are given for plying passengers in the city. The agreement entered by the appellant-company with individual drivers is referred to as a subscriber agreement wherein driver is termed as a subscriber.

After investigation, the officers of DGCEI concluded that by giving taxi to an individual driver for use, appellant has rendered the services which fall under "Supply of Tangible Goods for use" (STGU).

Three SCNs came to be issued in October 2010, October 2011, October 2012 respectively demanding service tax for the period beginning 16.05.2008 to 31.03.2012.

And like all other SCNs, these too came to be confirmed along with interest and a fleet of penalties.

Before the CESTAT when the stay application came up for hearing, the Bench found it prudent to take up the appeal itself.

The appellant took the road less travelled but the Special Counsel for the Revenue stuck to the worn and beaten path .

Obviously, the CESTAT had the final say in the matter.

But, before that, the four undisputed facts -

+ Appellant is a Radio Taxi Operator and is functioning as per the provisions of the law that grants permission for plying radio taxi in a particular area. It is also undisputed that in order to get a radio taxi/fleet taxi license, the operator is per-se required to be a company or a partnership firm or a society and definitely not an individual; operator must have minimum number of 500 radio taxi to put into operations; operator is required to obtain taxi permits from the concerned state authorities in their name and the fare to be charged by such radio taxi operator is fixed by the State Government based on deliberations along with the operator.

+ It is also undisputed that the radio taxi operated by the appellant are booked by a Customer through a call placed directly to the appellant-company, though the taxi driver is not prohibited from entertaining customers from the kerb side pick up. On booking of a taxi, by individual customer, appellant decides which taxi will be attending the customer for transporting him to his desired destination; the customer is issued a bill /print out of the fare bill by the taxi driver on completion of the journey and the said fare bill is issued in the name of the appellant herein.

+ It is also undisputed that the appellant enters into individual agreement or contract with the drivers contracting them to use the vehicle for ferrying the passengers booked by the appellant.

+ It is also undisputed that the fare from the passenger is collected by the driver and after retaining his amount as per the agreement/contract, the driver deposits an amount in the designated bank of the appellant.

The Bench adverted to the definition of "Supply of Tangible Goods service" and observed that there has to be a supply of tangible goods or appliances for use, without transferring right of possession and effective control of such tangible goods.

The Tribunal observed –

++ In the case in hand, undoubtedly, the tangible goods in the form of radio taxi are given to the driver and there is no transfer of the possession of the vehicle but physical transfer has taken place, but the effective control of such taxi still is in the hands of the appellant. This view of ours is based upon the fact that majority of the time, the taxi is booked by a call from customer to appellant's Call Centre. On the basis of the direction of the appellant, the driver of taxi in the vicinity of the passenger ferries him to his desired destination.

++ It is also to be noted that the driver of radio taxi is not a permit holder and he does not have independent authorization for plying the vehicles and is allowed to take passengers on instructions and directions from the appellant only. Passenger or a customer contacts appellant for booking the radio taxi for the journey and if there is any deficiency of services, the appellant is hauled before the courts and not the driver as also for any misdemeanor of the driver.

++ It can be safely presumed after perusing the clauses of the agreement between the appellant and the driver, the driver is collecting the fare amount from the customer on behalf of the appellant, as fare invoice for the journey is created and issued in the name of the appellant.

++ The entire findings of the adjudicating authority has been misdirected to hold that the driver keeps bulk of the amount of the journey and deposits only small portion of the amount as agreed between the appellant and the driver, which indicates the radio taxi is given for use and covered under STGU. The confusion has arisen due to the reason that the driver depositing the money is considered service recipient for use of such road taxi or supply of tangible goods.

++ In the entire exercise the adjudicating authority has lost the sight of the fact that the supply of tangible goods in the case in hand is not for the use of the driver, but it is for the use of the appellant herein; the entire action of booking of the radio taxi till the collection of the fare from the customer/passenger is on behalf of the appellant.

++ It is also noted from the records that appellant is providing training to the driver and drivers are compensated adequately for the driving undertaken on behalf of the appellant; which will lead to a conclusion that appellant is providing services to the individual passengers and not the driver. The privity of contract of supply of taxi for undertaking the journey is between the appellant and the passenger and not the appellant and driver.

++ The adjudicating authority has based his entire findings to hold against the appellant by relying upon the various clauses of the agreement/contact entered by the appellant and individual driver and more specifically on the terms of the phrases for "use".

++ We have gone through the entire agreement and find that the said agreement is an agreement which indicates that though the driver is in possession of the vehicle, he has to function under the authority and directions of the appellant, who would book the passengers and pass on the booking to drivers. The said agreement does not any where indicate that the driver are having the possession of the vehicles for their use, which is the most important aspect to be covered under category of services under supply of tangible goods.

Holding that the appellant is not covered under the entry supply of tangible goods, the impugned orders were set aside and the appeals were allowed with consequential relief.

In passing: Unconditional reliability, always.

(See 2015-TIOL-2408-CESTAT-MUM)