Contract carriage refers to the hiring of a vehicle for a specific purpose or period, with the vehicle being used exclusively by the person who has hired it. This arrangement is common in various industries, including transportation, logistics, and tourism. In India, the service tax law has provisions related to contract carriage services, which are important for business owners, contractors, and individuals who use such services.
Under section 65(33) of the Finance Act, 1994, “Contract carriage” means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether express or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorized by him in this behalf on a fixed or an agreed rate or sum, —
(a) on a time basis, whether or not with reference to any route or distance; or
(b) from one point to another, and in either case, without stopping to pick up other passengers on the way.
In simpler terms, contract carriage refers to the hiring of a motor vehicle (such as a bus, taxi, or tempo) by a person or organization for a specific trip or period, with the vehicle being used exclusively for the purpose agreed upon. The contract can be either oral or written, and it can be for a fixed period or for a specific journey.
Service tax is a tax levied by the Indian government on certain services provided by businesses or individuals. The provisions related to service tax on contract carriage services are outlined in Section 66D of the Finance Act, 1994. According to this section, services provided by way of transportation of passengers by a contract carriage for a consideration are exempted from service tax. However, if the service is provided for transportation of passengers by an air-conditioned contract carriage, then service tax is applicable.
It is essential to note that the exemption is only applicable to contract carriage services and not to other types of transport services. For instance, services provided by way of transportation of passengers by a non-contract carriage (such as a public transport bus) are subject to service tax. Additionally, services provided by way of renting of a motor vehicle to carry passengers are also subject to service tax.
In conclusion, contract carriage refers to the hiring of a motor vehicle for a specific trip or period, with the vehicle being used exclusively for the purpose agreed upon. These services are exempt from service tax, except when provided by an air-conditioned contract carriage. Business owners and individuals who use contract carriage services should be aware of the provisions related to service tax and ensure compliance with the law.