MH AAR Ruling on applicability of GST on Hiring of Motor Vehicles

Recently Maharashtra Authority for Advance Ruling (‘AAR’) has issued an advance ruling in the matter of M/s. Shailesh Ramsunder Pande (Trade Name – Pooja Vaishnavi School Bus Service) (herein after referred as the Applicant). The applicant had approached Maharashtra AAR seeking a ruling on applicability of “SI. No. 15 Heading 9964 Of Notification No. 12/2017, dated 28^th June 2017” on the transportation of passengers by supply of Non-AC Buses and consequently the determination of the liability to pay tax thereon.

A. FACTS OF THE CASE                                              

• The Applicant entered in contract with M/s Ratan India Power Limited (herein after referred as RIPL) for supply of Non-AC Buses for transportation of their staff under contract carriage.
• As per contract, the buses shall be operated strictly as per the instructions of RIPL and Insurance Charges, etc., will be paid by the applicant whereas toll tax, etc. will be paid by the RIPL.
• The applicant being supplier has raised Tax invoice with description of service as “HIRING OF VEHICLE”.
• The Applicant considered that the services is squarely covered in Contract Carriage and transportation of the staff by non-AC motor under contract carriage is exempted under the clause 15(b) of Notification No. 12/2017, dated 28^th June 2017”
• In this regard, the Applicant sought an advance ruling on the following questions:

1. Applicability of exemption notification issued under the provisions of this Act.

2. Determination of the liability to pay tax on any goods or services or both.

B. OBSERVATIONS AND RULING OF THE AAR 

• AAR referred to No. 15 Heading 9964 of Notification No. 12/2017, dated 28^th June 2017” reproduced below:

• AAR examined the applicability of exemption notification & taxability of impugned supply and observed following:

That the ownership of buses lies with the applicant and against all the expenses incurred for running the buses, a fixed amount is received from RIPL.

> The control for deployment and movement of buses lies with the RIPL as there is a clear transfer of right to use the buses by way of effective control as is seen from the fact that the buses are plying strictly as per RIPL’s instructions, and the applicant cannot run the buses on their own.

> That, in the case of transportation of passengers, the recipient of service would be the passenger whereas in the case of renting of any motor vehicle, like buses in the subject case, the recipient is RIPL and not their staff travelling in the buses.

> Further the consideration for supply of service is charged by the applicant from the RIPL and not from the staff.

> That, the applicant does not satisfy the condition prescribed to define contract carriage in clause (7) of section 2 of the Motor Vehicles Act, 1988. Thus, cannot be considered as ‘Non-air-conditioned contract carriage’ and are hence not eligible for exemption under the serial no. 15 of the exemption Notification No. 12/2017, dated 28^th June 2017”

> That, even if the contract is assumed as ‘non-airconditioned contract carriage’, Serial no. 15 of the exemption Notification No. 12/2017, dated 28^th June 2017” does not exempt it from GST, as the “hired” non-airconditioned contract carriage are ‘excluded’ from exemption as specifically mentioned in the said notification. Hence the service provided by the applicant falls under ‘rent a cab’ service.

> In view of above, the subject activity, amounts to ‘renting of motor vehicle’ and shall qualify as a taxable activity under the provisions of the GST Laws. Since the subject activity is not ‘transportation of passengers’ as discussed, the provisions of Notification No. 12/2017, dated 28^th June 2017” are not applicable in the subject case.

> That, the service provided is ‘rent a cab’ Service and the subject case is clearly covered by Entry Sr. No. 10 of Notification No. 11/2017 – CT (Rate) dated 28.06.2017 in as much as there is a Rental services of transport vehicles with or without operators. All activities of Renting of any motor vehicle/transport vehicle which is designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient are chargeable to either 2.5% GST or 12% GST depending on availment of Cenvat Credit.

• AAR ruled the following on specific questions of applicant:

> The provisions of Notification No. 12/2017, dated 28^th June 2017” (Exemption Notification) are not applicable in the subject case and the service provided by the applicant is not exempted under the said notification as discussed above i.e. since the subject Service does not fall under ‘non-air conditioned contract carriage’ but is covered under ‘rent a cab’ service.

> The impugned service provided is ‘rent a cab’ service, which attracts GST @ 5% provided that credit of input tax charged on goods and services used in supplying the service, (other than the input tax credit of input service in the same line of business) has not been taken or 12% if input tax credit has been availed.

C. OUR COMMENTS

Authority has rightly observed that, in the case of transportation of passengers, the recipient of service would be the passenger whereas in the case of renting any motor vehicle, like buses in the subject case, the recipient would not be the passenger. In the subject case, the consideration for the supply of service is charged from RIPL and not the passenger. Hence, the above-mentioned service is not exempt by virtue of exemption notification rather it is a taxable supply of rent a cab. Further, the service is chargeable to tax with an option available to service provider to charge @ 5% with NO ITC and 12% WITH ITC as applicable to Rental services of transport vehicles.