In re Sundaram Finance Limited (GST AAR Tamilnadu)
Q1. Whether the portion of the certain additional services viz., payment of road tax/registration fees, insurance premium, etc., rendered by the applicant in the course of its Leasing of the vehicle/s to the Lessee falls under the category of services of a pure agent?
A1. The portion of the certain additional services viz,, payment of road tax/registration fees, insurance premium, etc., rendered by the applicant in the course of its Leasing of the vehicle/s to the Lessee and recovered in monthly instalments do not fall under the category of “services of a pure agent” and therefore it is ruled that they are not an ‘Pure Agent’ under Explanation to the Rule 33 of CGST/TNGST Rules 2017.
Q2. Whether the recovery of Motor Vehicle Registration fee, Motor Vehicle life Tax & RTO charges etc., by the applicant from the lessee for the registration of the vehicle in the name of the lessee forms part of the value of supply or the applicant is acting as a pure agent for this purpose and so the above charges do not form part of the taxable supply ?
A2. Additional payments made by the Applicant towards Motor Vehicle Registration fee, Motor Vehicle life Tax, RTO charges etc., for getting the vehicle to use on the Road, which are recovered from the Lessee, forms part of the supply of Leasing services and therefore should form part of the taxable supply.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance
Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
M/s. Sundaram Finance Limited, 21, Patullos Road, Chennai 600 002 (hereinafter called the Applicant) is registered under GST Vide GSTIN 33AAACS4944A2ZT. The applicant is a Non-Banking Financial Company having its registered and head office at Chennai and among its other finance services, is also involved in the business of leasing. The Leasing business involves leasing of machineries, commercial vehicles, and non- commercial vehicles. The Applicant has separate GST registrations for its leasing business in eleven States. They have sought Advance Ruling on the following question:
1. Whether the portion of the certain additional services viz., payment of road tax/registration fees, insurance premium, etc., rendered by the applicant in the course of its Leasing of the vehicle/ s to the Lessee falls under the category of “services of a pure agent”?
Or
2. Whether the recovery of Motor Vehicle Registration fee, Motor Vehicle life Tax & RTO charges etc., by the applicant from the lessee for the registration of the vehicle in the name of the lessee forms part of the value of supply or the applicant is acting as a pure agent for this purpose and so the above charges do not form part of the taxable supply ?
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.
2.1 The applicant has stated that the Lessee/customer approaches them with a request to extend leasing facility upon such terms and conditions. The Lessee is the one who decides the make, model and class of Assets required for his use, including identifying of the supplying dealer and approaches them for extending lease facility. Once the lease terms are agreed, they both enter into the required lease agreement. The legal ownership of the Assets rest with the applicant and the lessee holds the same as a mere bailee of the lessor. As per the master lease agreement, they being the Lessor at the request of the Lessee (customer) agree to purchase and let on lease the Assets for lessee’s use. The period of lease and the terms and conditions for payment of lease amount are contained in the supplemental agreement(s). Though the Assets to be leased out by the applicant are billed by the vehicle dealer in the name of the applicant, the lessee shall be solely responsible for taking/obtaining delivery and possession of the same from the dealer in terms of the Master lease Agreement and Supplemental Lease Agreement entered with the applicant. In case where the leased asset happens to be vehicles requiring registration, since the Lessee is the actual user of the vehicle and the person who will be in control and possession of the same and at whose request the vehicle has been purchased by the applicant/Lessor for the purpose of providing it on lease, to comply with the provisions of the Motor Vehicles Act, the vehicle is allowed to be registered in the name of the Lessee. The registration certificate pertaining to the vehicle will bear an endorsement of the Applicant’s name as “Lessor”, which will continue until the termination of lease or its early determination. It’s the responsibility of the supplying/selling dealer to deliver the vehicle/s after proper registration and hence the supplying dealer demand further payments towards Motor Vehicle Tax, RTO fee, insurance premium, fastag etc., which are also released to the supplying dealer by the Lessor at the request of the Lessee. The Lease rentals are accordingly calculated, and rental repayment schedule is drawn up, which forms part of the Supplemental Lease Agreement. Though leasing is termed as a “Service” as per the GST law, the GST rate applied on the lease rentals is that of the rate that is applicable on the supply of Goods which forms part of the lease, and the GST is accordingly being remitted by them.
2.2 On their interpretation of Law, it is stated that for the purpose of COST Act, 2017 and TNGST Act, 2017 and the transactions for which advance ruling is sought, the parties are described hereunder:
i. Vehicle dealer Third Party/Supplying Dealer
ii. Applicant/ Lessor Lessor/ Supplier of Leasing
facility
iii. Customer/Lessee/ Lessee/Recipient of Leasing
facility
The Vehicle dealer (third party) raises a Tax invoice for the vehicle on the applicant (Lessor/ supplier of leasing facility) which includes the unit price for the vehicle after discount, if any, CGST @14%, SGST @14% plus compensation cess as may be applicable. A separate debit note is also raised by the Vehicle dealer (Third Party) on the applicant (Lessor/supplier of leasing facility) for the registration & Motor vehicle life tax & RTO charges, accessories, fastag, TCS etc. As of now, they calculate the monthly lease rentals based on the aggregate amounts released by them to the Vehicle Dealer as per terms and conditions with the lessee (recipient) on which the applicant (Lessor/supplier) in the leasing transaction remits GST at the appropriate rate. As regards the registration & Motor Vehicle life tax & RTO charges, insurance premium etc, these are actuals paid by them to the vehicle dealer (third party) to enable the vehicle to get registered for use by the Lessee. Since the Lessee is the actual user of the vehicle and at whose request the vehicle has been purchased by the applicant/Lessor for the purpose of providing it on lease, they submit that the Applicant/Lessor should be treated as a “Pure Agent” in terms of Rule-33 of CGST Rules in respect of payments made by them towards such additional services viz., registration & Motor Vehicle life tax & RTO charges, insurance premium etc., and thereafter get it reimbursed from the Lessee (recipient) on actual basis. Since the above said charges are passed on to the lessee (recipient) by them as such, these expenditure or costs incurred by them on behalf of the Lessee are to be treated as “services” that are made by them as a “pure agent” of the Lessee (recipient) of the supply and therefore shall not form part of the value of the supply. They submit that these additional payments are statutory requirements, receipted and issued in the name of the Lessee/recipient, including the GST portion, if any, applicable in any of these payments. Thus, when the Applicant/Lessor is acting only as a “pure agent” of the Lessee/Recipient for these payments/services rendered in respect of payment of the above charges to the vehicle dealer (third party) and getting it reimbursed from the lessee (recipient), it should be allowed to exclude these payments from GST chargeability. If the applicant is allowed to act as “Pure Agent” for these road tax and other incidental payments pertaining to the leased asset/vehicle, the applicant shall not capitalize the same in its books. Therefore, the issues on which the Advance Ruling is sought are as under:
i. Can the applicant be construed as a pure agent falling within the Explanation to Rule 33 of the CGST rules 2017 and TNGST Rules 2017
ii. Does the registration & Motor Vehicle life tax & RTO charges, Insurance premium etc., paid by the applicant and thereafter reimbursed by the lessee forms shall be excluded from the value of supply transaction (leasing) done by the applicant
iii. In the event of the Authority is not convinced that these additional payments don’t fall within the ambit of “Pure agent”, whether such payments can be treated as separate services by allowing the applicant to apply GST at the rate applicable to general services, viz. @18% instead of applying the higher rate applicable to the goods forming part of the lease
3.1 Due to the prevailing PANDEMIC situation and in order not to delay the proceedings, the applicant was addressed through the Email Address mentioned in the application to seek their willingness to participate in a virtual Personal Hearing in Digital media. The applicant vide their e-mail dated 13.12.2021 communicated that they preferred to be heard physically and not virtually. The hearing was held on 28.12.2021. The Authorised representatives Shri. R.Sridharan, Sr. Gen _Manager & Head-Indirect Taxation and Shri. U.Somanathan, Assistant Gen.Manager -Taxation attended the hearing and reiterated their submissions. They submitted additional submissions in writing. They submitted that they are a Non – banking financial company extending finance facilities for the purchase of vehicles by way of hypothecation and leasing; that a Master agreement is entered into containing general terms and a supplemental agreement containing the period of lease and terms and conditions of payment of lease amount for that transaction. The minimum rate of GST for vehicles is 28% and adding the applicable cess payable on the monthly lease rentals works up to 50%. Further the cost of insurance, fastag which have already suffered GST is taxed again. Hence they have filed the application for ruling. Members questioned whether the actual cost of services are clubbed or is separately charged. The AR replied that they are clubbed and are built into the EMI/rentals. The applicants were asked to submit the following documents:
1. A write up on the entire transaction of leasing
2. Flowchart indicating the time of supply of goods and services separately‑ being followed presently and proposed to be done
3. Break-up and calculation of monthly EMI/Rentals
4. Details of title of goods and time of change of title
5. Master lease agreement
3.2 In the written submissions furnished during the hearing, the applicant has re-iterated their submissions on their business activities relevant to the ruling sought and on the questions seeking ruling, they have inter-alia stated as follows:
(I) Can the applicant be construed as a pure agent falling within the Explanation to Rule 33 of the CGST Rules 2017 and TNGST Rules,2017.
The applicant is of the view that to act as the “Pure Agent” of the Lessee, it satisfies the 3 conditions laid down under Rule-33, as answered below:
(i) The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient;
Ans: The applicant, as Lessor propose to amortize the value of the vehicle alone and consider the other charges, viz., road tax, insurance etc., as items to be recovered on monthly basis by way of raising debit notes to the Lessee.
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service;
Ans: Yes.
(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
Ans: The principal/main supply is the vehicle, and the Lessee will be the actual user of the vehicle and at whose request the vehicle has been purchased by the applicant/Lessor for the purpose of providing it on lease. These supplies are in addition to the supply of vehicle by the Lessor to the Lessee and are statutory requirements for plying the vehicle on road. Hence to be excluded and treated as supplies made as a “Pure Agent”.
(II) Does the registration & Motor Vehicle life tax 86 RTO charges Insurance premium etc., paid by the applicant and thereafter reimbursed by the lessee shall be excluded from the value of supply transaction (leasing) done by the applicant.
(a) These additional payments are statutory requirements, receipted and issued in the name of the Lessee/recipient, including the GST portion, if any, applicable in any of these payments.
(b) Since the above said charges are intended to be passed on to the lessee (recipient) by the applicant (lessor/supplier) as such, these expenditure or costs incurred by the Applicant (Lessor/ supplier) on behalf of the Lessee are to be treated as “services” that are made by the Applicant/Lessor as a “pure agent” and therefore excluded from the value of the taxable supply, which is the vehicle,
(c) If the applicant is allowed to act as “pure agent” for these road tax and other incidental payments pertaining to the leased asset/vehicle, the applicant shall not capitalize the same in its books.
(Ill) In the event of the Authority is not convinced that these additional payments don’t fall within the ambit of “pure agent”, whether such payments can be treated as separate services by allowing the applicant to apply GST at the rate applicable to general services, viz., @18% instead of applying the higher rate applicable to the goods forming part of the lease.
Though leasing is termed as a “Service” as per the GST law, the GST rate to be applied on the lease rentals is the rate that is applicable on the supply of Goods which forms part of the lease. The minimum GST rate for vehicles is 28% and adding the applicable Cess ranging from 1% to 22%, the total GST + Cess payable on the monthly lease rentals extends upto 50%. Applying the same GST and Cess rate applicable to goods on such additional supplies made by the Lessor to the Lessee, viz., road tax, insurance, etc., some of which have already suffered GST, certainly burdens the Lessee.
The applicant humbly submits that in case the learned authorities are not convinced on applying the “pure agent” concept for the subject leasing transactions, should consider treating such additional supplies separately and allow the applicant to charge GST as applicable to general services, which is currently 18% and oblige.
4.1 The applicant vide their letter dated 5th January 2022 submitted the following in pursuance of the Personal Hearing held on 28.12.2021,-
> Overview about Leasing transaction
> Copy of Master Lease Agreement dated 11th Day of May 2005
> Flow Chart of EMI working and supporting documents for lease contract No. YC5002HX,-
