Introduction It is always a debatable issue as to whether transportation activity is a service or it is an activity involving leasing of vehicles. Transportation can be of goods or of passengers. Normally, in transportation activity the respective vehicles like trucks or buses are operated by the owners. However, there can be different kinds of agreements. If the relevant agreement is held to be an agreement for service then it may be liable for service tax, but there will not be any liability under the State VAT laws. However, if the transaction is determined to be a transaction of leasing vehicles, then VAT will apply.
The situation depends upon facts of each case. There are number of judgments having different interpretations. Recently, Maharashtra Sales Tax Tribunal (MSTT) had an occasion to deal with one such issue.
Buthello Travels vs. State of Maharashtra (VAT A.No.1135 of 2015 dt.11.12.2015)
Facts
The Hon. Tribunal has noted the facts as under: “12. Now in this case the issue agitated before us, which is regarding the amount received by the appellant from PMPML towards hire charges of the buses. In this context it would be useful to refer the settled legal position. The legal position is referred by Andhra Pradesh High Court in the case of State Bank of India and Others vs. State of Andhra Pradesh (70 STC 215). The principle is as under-
“With that there is a transfer of the right to use or not is a question of fact which has to be determined in each case having regard to the terms of contract under which there is said to be a transfer of right to use.”
The second principle laid down is that the agreement has to be read as a whole to determine the nature of transaction. Therefore, it is very essential to refer to the Lease Agreement for Hiring of Buses. In view of the above, we reproduce herewith some relevant portions of the agreement dated 22nd July 2004:
“Whereas
a) Pune Municipal Transport (PMT) intends to expand and augment its existing fleet of passenger buses.
b) to achieve the same, Pune Municipal Corporation suggested to hire passenger buses. Accordingly PMT published a tender notice as on 28/04/2003 in Marathi and English newspapers.
c) in response to the above advertisement 1 of the bidder is present contractor who is second part of this Agreement submitted his tender as per the terms and conditions thereof.
Now therefore this agreement witnesseth and it is hereby agreed by and between the parties as follows: 1
) This agreement will come into force only after buses are handed over by the contract work to PMT as per schedule “B”, duly registered with RTO Pune and permitted by RTO Pune to ply the buses on stage carriage permits held by PMT and no liability will be incurred on PMT till the agreement comes into force.
2) Buses must comply to the specification as enumerated in Annexure ‘A’ and the number and size of buses to be provided shall be as per Annexure ‘B’.
3) Tenure of the Agreement will be for a period of 5 (five) years from the date of permission to ply the buses of contract on PMT permit granted by RTO Pune.
4) The hired buses will be registered with RTO Pune in the name of PMT as lessee and will be operated as stage carriages within operational area of the PMT. The medium buses will be operated minimum 7,000 km per month, the minibuses will be operated minimum 6,000 km. per month, subject to the reasonable daily operation.
5) (i) the PMT will provide conductor with tickets, way bill and other conductor’s equipment.
(ii) It shall be the right of PMT to collect the fare charges. The fare charges will be credited to the account of PMT. The contractor shall not have any right to claim over the cash collection for any reason whatsoever.
(iii) The conductor of the bus alone shall collect all the fare and luggage charges. Neither the private bus contractor nor the driver who shall have any claim on the fare and luggage charges or any amount so collected.
6) The General Manager PMT shall have sole discretion to identify the routes on which hired buses shall be deployed. The contractor shall have no right to claim any particular route for operation.
(7) Responsibilities of the Contractor
(i) To provide the bus with driver possessing valid driving license with P.S.V. badge and complying PMT norms and certificate of medical fitness from competent authority. Driver shall follow the instructions of the authorities of the PMT. The driver will have to undergo training and test of driving. If necessary, driver should undergo medical examination by the medical officer of the corporation. Only successful driver will be approved. Expenditure of the training of the driver by PMT will have to be borne by the contractor. Driver must fulfill the norms prescribed by PMT. The driver should have knowledge of Pune City. However Contractor will be permitted to employ the surplus bus drivers employed with PMT where the post of drivers has become surplus on the Establishment of PMT.
(ii) It will be the responsibility of contractor to ensure that driver maintains close coordination with conductor and provide facilities to passengers and ensure that the passengers are not put to any inconvenience. The driver should have polite behavior with public and passengers and PMT staff.
(iii) The contractor shall not employ a person as a driver for operating a bus on hire basis who has been removed or dismissed, retired on superannuation from the service of PMT or any other Public Undertaking. Also driver must be of the age less than 58 years. Driver who has met with a fatal accident during the contract period should not be continued for 2 months.
Thereafter the driver will be continued by the contractor on his satisfaction given in writing to the PMT that the driver was not at fault for the accident.
(iv) The contractor shall provide uniform to the driver as prescribed by the PMT. The contractor shall provide an identity card with photo attested by contractor and PMT to the driver. Contractor shall furnish photo copy of the driving license of the driver to PMT.
(vi) The contractor/driver shall scrupulously follow instructions issued by the PMT periodically. As and when the PMT finds behaviour and conduct of the driver questionable, upon the notice, the contractor of hired buses shall replace him with the substitute driver immediately. If the private bus contractor fails to replace such a driver within a period of 7 days of notice thereafter, the bus assigned to that driver shall be liable to be discontinued without prior notice and no hire charges will be payable to contractor.
(xiv) The contractor shall produce the vehicle for inspection at the time of deployment and also subsequently whenever required by the PMT.
(xv) Contractor shall inform the place where he will be parking the vehicles and place where he will be repairing the vehicles. This may be checked by PMT authorities.
8) Calculation of kilometres of hired buses
(iii) Distance operated for making payment will be reckoned from appointed terminus for plying vehicles as per the kilometers of the trip distance as per time table.
(iv) Cancelled kilometers on account of mechanical breakdown enroute and any other reasons beyond the control of PMT shall be deducted.
(v) The contractor shall make available the bus for a minimum 16 hours a day. In case bus is not made available minimum 16 steering hours a day, it will not be counted as a day for the purpose of reckoning the number of days operated in a month.
(vi) In case of cancellation of trips for any reasons deduction shall be made and actual kilometres operated be reckoned for payment for hire charges.
(vii) In case of breakdowns PMT can divert the passengers to any other hired bus or bus of PMT. On such occasion the kilometers from the point of the breakdown to the destination point shall be deducted.
(viii) Increase in kilometers due to enforcement of law and order shall not be reckoned for hire charges where PMT has not changed its fare structure. …”
There are further terms which are not reproduced here for the sake of brevity.
The Hon. Tribunal has referred to number of judgments cited byboth the sides about nature of lease transaction. Hon. Tribunal has referred to judgments including that of Bharat Sanchar Nigam Ltd. (145 STC 91)(SC) and also considered the criteria laid down in the said judgment about nature of lease transaction.
After referring to citations, the Hon. Tribunal has arrived at the following conclusion.
“13. After having perused the copy of Agreement between the appellant and PMT, it becomes amply clear that the appellant has given the buses on hire to PMT for a specified period. During the entire period of contract, and when the buses are standing idle or have free time or are not being used by PMT, the contractor (appellant) is prohibited from using these same buses for his personal use or gain. This proves that, during this period of agreement the buses along with the drivers are completely at the disposal and under the control of PMT. Now we need to address the appellant’s claim that he is not a ‘dealer’ as defined under section 2 (8) of MVAT Act. In support of his claim the appellant has relied on the judgment of Honourable Bombay High Court in the case of Commissioner of Sales Tax, Maharashtra State, Mumbai vs. General Cranes [2015] 82 VST 560 (Bom).
14. In order to determine whether there is a transfer of right to use goods so as to make the contract one of sale under article 366 (29 A) (d) on the point of law, both the parties are unanimous that the test is of effective control and possession with respect to the goods.
In para 13 of the judgment of Honourable Bombay High Court, in the case of Commissioner of Sales Tax, Maharashtra State, Mumbai vs. General Cranes [2015] 82 VST 560 (Bom), their Lordships observed that, “In the present case, the permissions and licenses with respect to the cabs are not available to the transferee and remained in control and possession of the respondent. It is the driver of the vehicle who keeps in his custody and control the permissions and licenses with respect to the Maruti Omni Cabs or the said permissions and licenses remained in possession of the respondent. These are never transferred to M/s NDPL. It, therefore, cannot be said that there is a sale of goods, as transfer of right to use in as much as a necessary ingredient of sale, the transfer of right to use the goods, is absent”.
15. In the present case before us, it is very crucial to understand the nature of transaction. It is broadly outlined, as we understand from the records and documents placed before us. The Pune Municipal Transport is a public transport undertaking established as per the provisions of section 66 (20) of the BPMC Act 1949, to cater to the needs of commuters in and around the Pune City, who holds the stage carriage permits. The appellant does not hold or own stage carriage permit.
It is agreed between the parties that, the buses must comply with the specification as enumerated in the terms and conditions of the agreement. Tenure of the agreement will be for a period of 5 years from the date of permission to ply these buses of contractor on PMT permit granted by RTO , Pune.
16. On perusal of the copy of the agreement before us, it clearly specifies that the buses should be registered in the name of PMT as lessee. Clause number 15 of the agreement indicates that, the copy of the RC book, insurance policy and fitness certificate of the bus be deposited with PMT or duly exhibit the copy of the documents in the bus. This clearly exhibits that, overall custody and control of the documents is with the PMT. The admitted position which emerges is that, PMT is made available with the legal consequence and legal right to use the goods, namely the permissions and licenses with respect to the goods. This being the factual difference in the present case and the case of Commissioner of Sales Tax, Maharashtra State, Mumbai vs. General Cranes [2015] 82 VST 560 (Bom), the appellant is rightly held as a dealer under the MVAT Act, and assessed as unregistered dealer.”
Thus, The Hon. Tribunal has considered the given transportation activity as liable to tax under MVAT Act as Transfer of Right to Use goods.
A further position considered by the Hon. Tribunal is that, there were receipts for other transportation where the facts were not same as discussed above. Hon. Tribunal has directed the deletion of tax on such receipts. The said direction is as under:
“17. In our considered opinion, all the criteria as set out by Honourable Supreme Court in the judgment in the case of Bharat Sanchar Nigam Ltd. and another vs. Union of India and Others [2006] 3 VST 95 (SC), are satisfied. Therefore, we have no hesitation to determine the impugned transaction with PMT as a sale, as per section 2 (24) Explanation – (b) (iv) of MVAT Act, liable to tax. However, on perusal of assessment order it is observed that the assessing officer has taxed the total income of the appellant, which includes bus hire receipts from other customers. In our considered opinion the appellant is entitled to relief of tax including consequential interest and penalty levied on the turnover of income from other customers, other than PMT.
Hence, we pass the following order.”
Conclusion
Thus, the situation about attraction of service tax or VAT in relation to transportation activity is to be seen in light of individual facts and terms of agreement. As different facts are considered by courts, broad principles will gradually emerge.
