F.No. V/DGST/30-Misc-06/2000/8975 dated 3-3-2000 of DG Service Tax

Please refer to the provisions made in the Finance Bill 2000 and the explanatory notes issued by the Ministry alongwith the d.o. letter F.No. 334/1/2000-TRU, dated 29-2-2000 of Joint Secretary (TRU), on the above subject.

2.The Hon’ble Finance Minister, while presenting the budget, indicated that no substantive changes are being made in respect of the administration of Service Tax, and the Government has decided to constitute an Experts Committee to go into the entire gamut of issues pertaining to this tax. Nevertheless, a few changes have been brought about which would require necessary action by all Commissionerates.

3.1 Notification No. 2/2000-S.T., dated 1-3-2000 has been issued providing full exemption to the taxable services in respect of Mechanised Slaughter Houses. As such, mechanised slaughter houses are not required to pay any Service Tax, w.e.f, 1-3-2000 and any such establishments registered in your jurisdiction may be allowed to cancel their registrations.

3.2 The services provided by the ‘Tour Operators’, and ‘Rent-a-Cab Scheme Operators’ are presently exempted from payment of Service Tax by virtue of Notification No. 52/98-S.T., dated 18-7-1998 and 3/99-S.T., dated 28-2-1999, respectively. The abovesaid notifications are applicable upto 31-3-2000.

The Ministry has indicated that these exemptions are not being renewed. Consequently, necessary action would have to be taken to levy and collect Service Tax on these two services, w.e.f. 1-4-2000.

3.2.1 You may recall that the services provided by Tour Operators and Rent-a-Cab Scheme Operators were brought in service tax net, w.e.f. 1-9-1997 and 16-7-1997, respectively. At the relevant time, the field formations would have got such service providers registered with them. However, in the meantime, the definitions of Tour Operators and Rent-a-Cab Scheme Operators were amended by virtue of provisions made in the Finance (No. 2) Act, 1998.

3.2.2The definition of term “Rent-a-Cab Scheme Operator” is contained in Section 65(38) of the Finance Act, 1994. Prior to the amendment, scope of said term was limited to a person who was holding a licence under the Rent-a-Cab Scheme, 1989, framed by the Central Government under the Motor Vehicle Act, 1988, as a Rent-a-Cab Scheme Operator. Under the said scheme, a licence is granted only in the case where a person has a minimum of 50 cabs. However, in the revised definition, the requirement of operators being registered under the Rent-a-Cab Scheme has been dispensed with. Consequently, any person who is engaged in the business of renting of cabs would be required to pay Service Tax, irrespective of number of vehicles engaged by him in providing this service.

3.2.3The definition of “Tour Operators” is provided in Section 65(52) of the Finance Act, 1994. The revised definition provides that any person engaged in the business of operating tours in a tourist vehicle, covered by a permit granted under the Motor Vehicle Act, 1988 or Rules made thereunder, would be treated as a Tour Operator. Consequently, ‘non-permit holder’, who operate as Tour Operator by using vehicle which may have been leased or hired from persons who hold tourist permit, are also covered under the definition of a Tour Operator and are liable to pay Service Tax.

3.2.4 The changes mentioned above were of little practical  significance in the interim period as these services were till now exempted from the payment of Service Tax. However, as the exemption is expiring on 31.3.2000, adequate care may be taken to cover all those service providers also who are covered by the revised definitions. A report regarding number of registrations issued, w.e.f. 1-4-2000, to the Tour Operators and Rent-a-Cab Scheme Operators may be forwarded to this Directorate by 15-5-2000 indicating separately the number of new assessees who have been registered as a consequence of the revised definitions.

3.3.1 Clauses 112  & 113 of the Finance Bill, 2000 relate to retrospective amendments in the Finance Act, 1994 with reference to the services rendered by the Goods Transport Operators and the Clearing & Forwarding Agents. The intention of these amendments is to validate the Rule 2 (1) (d) (xii) & (xvii) of the Service Tax Rules,1994 which shifted the burden of levy on the service receivers in the case of services rendered by GTOs and C&F Agents. As you are aware, the Hon’ble Supreme Court in its judgement in the case of M/s. Laghu Udyog Bharati & Others v. Union of India - 1999 (89) ELT 247 held the above rules to be ultra vires the provisions of Finance Act, 1994. Accordingly, these rules were struck down. However, the Clause 112 seeks to incorporate new definitions for terms “Assessee”, “Goods Carriage”, “Goods Transport Operators”, the taxable services rendered by the GTOs as well as the value of such taxable services and read with Clause 113 seeks to deal with the situation arising from the judgment of the Hon’ble Supreme Court. It is also provided that no consequential refunds shall be admissible. Further, wherever, such refunds have already been granted the amounts so refunded shall become liable to be recovered once the Finance Act, 2000 receives Presidential assent. If the refund granted is not repaid within a month from the enactment of the Finance Act, 2000, the same shall be recoverable alongwith a interest @24% p.a.

3.3.2 In view of the provisions made under clauses 112 & 113, the Ministry has indicated that no refund of Service Tax needs to be made in terms of the said judgement or any other judgment of any other court. As such, the instructions issued by this Directorate consequent to the judgment in the case of M/s. Laghu Udyog Bharati are no longer relevant.

4.The changes made, as above, may be brought to the notice of Officers and Trade by issue of suitable Instructions/Public Notices.