A two-judge bench of the AP high court on Tuesday stayed the collection of service tax from private buses hired by AP State Road Transport Corporation (APSRTC), the state-owned carrier.

The bench comprising Justice G Rohini and Justice C Praveen Kumar made the interim order after hearing a writ petition filed by AP Hire Buses Welfare Association complaining that they were being made to pay service tax and value added tax (VAT) even when they were not required to do so. According to the petitioner, RTC had introduced the hired bus system in 2002-03 with a view to cut down its expenditure.

Appearing for the petitioner, senior counsel S Ramachandra Rao pointed out that the Indian Oil Corporation (IOC) was collecting service tax from the end user and paying it to owners of oil tankers. Tanker owners were paying the same amount to the government, which has also exempted them from paying VAT. The net result is that tanker owners are not paying either service tax or VAT. But the petitioners were being asked to pay VAT and service tax though they were not getting a single rupee towards this from the RTC. "This is highly unreasonable and irrational," he said. With over 3,577 such buses and the levy demanded for a period of around five years from 2006, the amount in question could be over Rs 35 crore.