The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a service tax demand of Rs. 17.95 lakh along with interest and penalties, ruling that employee transportation services provided through contract carriages are exempt from service tax under applicable exemption notifications.
The two-member CESTAT bench—comprising Dr. Rachna Gupta (Judicial) and Mr. P.V. Subba Rao (Technical)—ruled that the services fell squarely within the definition of “contract carriage” as per the Motor Vehicles Act, 1988. The buses were not used for tourism, charter, or hire purposes, but exclusively for employee and student transportation. Therefore, the services were fully exempt from service tax under Entry 23(b) of Notification No. 25/2012-ST for the period in question. Amendments restricting the exemption to non-air-conditioned vehicles were applicable only post-July 11, 2014, and not for the full disputed period.
The case originated from a service tax audit conducted by the Central Excise & Service Tax, Audit-I Commissionerate, Meerut, covering the period from July 2012 to November 2015. During the audit, it was observed that the appellant had entered into agreements with private transport operators to provide bus services for factory employees and school children. These agreements included payments for per-day bus usage as well as reimbursements for diesel and oil expenses.
The tax department treated these services as taxable under the category of “renting of a motor vehicle designed to carry passengers,” as defined under Notification No. 30/2012-ST, and issued a show-cause notice dated December 28, 2016, demanding service tax under the reverse charge mechanism. An original adjudication order upheld the demand, but on appeal, the Commissioner (Appeals) set aside the demand for the extended period due to procedural lapses and remanded the matter for reconsideration for the normal period.
Dissatisfied with even the partial confirmation of tax liability, the appellant challenged the demand before the CESTAT.
The central issue in the case was whether hiring buses under contract to transport factory employees and school children constituted a taxable service under the category of “renting of a motor vehicle designed to carry passengers,” attracting reverse charge liability. The tax department argued it did, while the appellant claimed exemption under Entry 23(b) of Notification No. 25/2012-ST.
The tribunal held that previous exemptions dating back to April 1, 2000, and validated by Section 75 of the Finance Act, 2011, supported the non-taxability of such services.
Case Details
Case Title: M/s. Century Pulp & Paper Versus Commissioner of CGST – Dehradun
Case No.: Service Tax Appeal No. 51062 of 2019
Date: 25.07.2025
Counsel For Appellant: K. Vaish
Counsel For Respondent: Aejaz Ahmad
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