Case Law Details
In re Aeon Financial Consulting LLP (GST AAR Tamilnadu)
Aeon Financial Consulting LLP, a Chennai-based company, applied for an Advance Ruling (AR) under the Goods and Services Tax (GST) Act, seeking clarity on three key issues related to their leasing business. The company intended to lease consumer durables, motor vehicles, mobile phones, and electronic equipment for periods ranging from 6 months to 2 years. The main queries involved whether such leasing constitutes a “continuous supply of services” under GST, whether the total contract price should be treated as the transaction value for GST computation, and whether the residual value of leased assets should be considered the transaction value upon their further supply after lease termination.
The applicant’s business model included purchasing assets, leasing them to registered persons (lessees), and issuing monthly or quarterly invoices with corresponding GST on lease rentals. Upon lease termination, the assets could either be returned, re-leased, or sold based on their residual or market value. The applicant sought confirmation on whether their leasing activities fell under continuous service provision and if their method of invoicing and GST collection was compliant with GST provisions, specifically under Sections 18(6) and 15 of the CGST Act, 2017.
However, during the proceedings, the applicant requested that the case be withdrawn. They communicated their decision not to pursue the matter further, which led to the application being disposed of as withdrawn without a ruling being issued. Consequently, the ARA (Authority for Advance Ruling) accepted the applicant’s request and concluded the matter accordingly, without addressing the merits of the case or making any determinations on the legal issues raised.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
M/s. Aeon Financial Consulting LLP, Flat No.1, B and C, Sivanandham apartments, East Park Road, Pulla Avenue, Shenoy nagar, Chennai 600 030 (hereinafter called as the “Applicant”) intends to get into the business of Leasing/ Renting of consumer durable products/ Motor Vehicles/ Mobile phones and Electronic equipment for tenure ranging from 6 months to 2 years. They are registered under the GST Acts with GSTIN 33ABAFA9251G1ZQ.
2. The Applicant has made a payment of application fees of Rs.5,000/- each under sub rule (1) of Rule 104 of CGST Rules, 2017 and SGST Rules, 2017.
3. The Applicant have preferred this application seeking Advance Ruling on the following:
1. Whether leasing (for a period from 6 months to 2 years) constitutes continuous supply of services as per Section 2(33) of CGST Act 2017?
2. Whether total contract price is considered as transaction value for computation of GST payable as per Section 18(6) of CGST Act 2017 at the time of supply of services. The tax invoice is proposed to be raised for every lease rental due (on a monthly basis) with corresponding GST collected every month?
3. On further supply of the aforementioned asset by the lessor, on expiry/termination of lease (and asset henceforth, returned by lessee) whether the transaction value shall be residual value of the asset?
4. Statement of facts in brief:
4.1 The applicant has submitted that they are planning to start a Leasing/ Rental business wherein they will procure consumer durable products/ Vehicles/ Mobile phones/ Electronic equipment/ Computers and Laptops and given them on lease for a certain period on a contract basis.
4.2 The applicant has also submitted the transaction flow of their business as follows:
i) The assets such as consumer durable products/vehicles shall be purchased on an outright basis, evidenced by a tax invoice.
ii) The aforementioned assets shall be let out on lease for tenure up to 4 years.
iii) The lease rentals, along with GST arc proposed to be charged to the “registered person (lessee)” with a corresponding tax invoice on a monthly/quarterly basis, throughout the tenure of the lease.
iv) At the end of the lease tenure, the leased asset would be returned by the lessee to the lessor (as per the terms of the lease agreement).
v) The aforesaid leased asset, could be leased out again by the lessor or sold at a residual value or Fair market value, depending upon the physical condition of the underlying asset.
Further, the applicant is of the understanding that leasing is covered under “supply” and will be treated as a supply of service as per Section 7, read with Schedule II.
4.3 The applicant has submitted the following interpretation of law in respect of the questions raised by them for which Advance Ruling is sought,
i) As the contract is for more than 3 months and is a supply of service, it constitutes a continuous supply of services as per Section 2(33) of CGST Act 2017.
ii) As on the contract inception date, the aggregate of lease receivables constitutes money received or receivable for a recurring period as per the contract terms, it can be referred as transaction value as per Section 18(6) of the CGST ACT 2017.
iii) On further supply of the aforementioned asset on expiry/termination of lease, the transaction value shall be residual value as only the residual value is recovered as per the contract.
5. The applicant is under the administrative control of State Tax Authority. The concerned Authorities of the Centre and State were addressed to report the detailed remarks and no pendency report on the questions raised by the applicant in their ARA application.
5.1 The concerned Center Authority vide their letter dated 07.03.2024 have informed that there is no pending proceedings against the applicant as per their office records and also furnished detailed remarks as follows,
Question No.2: Whether total contract price is considered as transaction value for computation of GST payable as per Section 18(6) of CGST Act 2017 at the time of supply of services. The tax invoice is proposed to be raised for every lease rental due (on a monthly basis) with corresponding GST collected every month?
Answer: Total contract price is considered as transaction value for computation of GST payable as per Section 15 of CGST Act, 2017 at the time of supply of services. Section 18 of the CGST Act, 2017 is related to the availability of credit in special circumstances.
Further, the invoice referred to in Rule 46, in the case of the taxable supply of services, shall be issued within a period of thirty days from the date of the supply of service as per Section 31 of COST Act, 2017 read with rule 47 of CGST Act, 2017.
Question No.3: On further supply of the aforementioned asset by the lessor, on expiry/termination of lease (and asset henceforth, returned by lessee) whether the transaction value shall be residual value of the asset?
Answer: The value of the capital goods is determined based on the transaction value, which is the price paid or payable for the goods. If the transaction value cannot be determined, the value will be determined based on the open market value of the goods.
5.2 The State Authority has not furnished any reply and therefore, it is construed that there are no pending proceedings against the applicant on the questions raised by the applicant in the ARA application.
6. Meanwhile, the applicant was given an opportunity to be heard in person on 25.09.2024 vide this office memorandum No.336/2023, dated 18.09.2024. In pursuance to this, the applicant vide their letter dated Nil received by e-mail dated 19.09.2024, has requested to drop the matter as they do not wish to pursue the same.
Discussions and Findings:
7. After due consideration, the aforementioned letter of the applicant, wherein they have requested to drop the matter as they do not wish to pursue it any further, is taken on record. Hence, their request is considered and the application is allowed to be treated as withdrawn without going into the merits or detailed facts of the case.
In view of the above, we rule as under:
Ruling
The ARA Application received from the applicant on 27.06.2023 is disposed as withdrawn as per the request of the applicant.
