TNSTC Cleared of Tax Evasion: CESTAT Excludes Public Transport from Rent-a-Cab Scheme

TNSTC Cleared of Tax Evasion: CESTAT Excludes Public Transport from Rent-a-Cab Scheme

In a recent decision, the Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) determined that the Tamil Nadu State Transport Corporation operates as a state transport corporation, not a rent-a-cab scheme operator.

Presiding over the case, members S.S. Garg (Judicial) and Vasa Seshagiri Rao (Technical) noted that the primary function of the assessee (appellant) is to offer public bus transportation services to citizens. They clarified that operating buses as a core service for public convenience falls outside the scope of rent-a-cab scheme operation.

The appellant, the Tamil Nadu State Transport Corporation (TNSTC), is a wholly-owned government undertaking of the Government of Tamil Nadu. TNSTC provides public transport services and is registered with the Service Tax Department. It has consistently paid service tax on goods transport agency (GTA) services and the sale of space services, and regularly files ST-3 returns.

The department alleged that the appellant, TNSTC, evaded service tax by providing vehicles to government departments, affiliated entities, and private parties. A show-cause notice was issued, accusing TNSTC of operating as a Rent-a-Cab service without seeking modification to the Service Tax Registration Certificate, failing to pay service tax and neglecting to file required returns — all with the intent to avoid tax payment. Consequently, a demand of ₹1,38,571 for service tax and interest was proposed, along with potential penalties.

The appellant, TNSTC, submitted a detailed response to the show-cause notice (SCN). Following due process, the original authority upheld the demand outlined in the SCN, including applicable interest and additional penalties.

In its appeal before the Commissioner (Appeals), TNSTC argued that, as a state government corporation, they have no intention to evade legitimate taxes. They claimed the issue stemmed solely from interpreting the "Rent-a-Cab operator scheme" definition and maintained a bona fide belief they were not covered. They argued that both the adjudicating and appellate authorities disregarded their submissions.

Citing the statutory definition ("any person engaged in the business of renting cabs"), TNSTC explained that they are not engaged in renting cab services and lack the characteristics of such operators. They argued renting cabs necessitates an organised and continuous activity, which does not apply to their core function of public transportation.

The Tribunal ruled that the impugned order could not be upheld legally and had to be set aside. Consequently, the appellant's appeal was allowed, and any related legal relief would be granted in accordance with applicable law.