Tax cannot be levied on school bus fees

My son goes to one of the reputed schools in Mumbai. He uses school bus service. For quite sometime the bus contractor is charging us service tax on the bus fees. I had a discussion with my friend whose child goes to another school but his bus contractor doesn’t charge any service tax on the bus fees. Both the contractors have approximately 20 buses which they ply on different routes. Can you please guide me as to whether service tax is leviable on the school bus fees that the contractor collects? — Vishal Mehta

Services provided by the bus operator will fall under the definition of tour operator service. The definition is as follows: “Taxable service w.e.f. 16.06.2005 means any service provided or to be provided to any person, by a tour operator in relation to a tour [Section 65(105) (n)].

“Tour operator w.e.f 16.05.2008 means any person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle or a contract carriage by whatever name called, covered by a permit, other than a stage carriage permit, granted under the Motor Vehicles Act, 1988, or the rules made thereunder”.

Explanation: For the purposes of this clause, the expression “tour” does not include a journey organised or arranged for use by an educational body, other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field. [Section 65(115)]

As per Boards letter F.No.137/70/2007-CX.4(PT) dated 15-12-2008, schools running transport service for their students are not liable to pay service tax under the category of Tour Operator.

It is further clarified that the activity of schools to transport children from and back to the school on the cabs owned and run by them does not constitute renting a cab and schools do not fall in the category of rent-a-cab operator. If the school is hiring a cab from outside, the same has been specifically been excluded from the scope of taxable service.

Hence, activity of transportation of school children on cabs owned by school or hired by a school doesn’t attract service tax.
Based on the above definition, the service of transportation of school children provided by the bus operator is not leviable to service tax. Hence, service tax is not leviable on the school bus fees that the contractor collects.

The writer is with M Sheth & Co, a chartered accountancy firm in Mumbai, and can be reached at mshethco@yahoo.co.in