GST Caselaw

#GSTCase-38: Activity of Supply of Non-Air-Conditioned Motor Vehicle is an activity of Renting of Motor Vehicle- and the story of Hiring and Renting Continues

#GSTCase-38: Activity of Supply of Non-Air-Conditioned Motor Vehicle is an activity of Renting of Motor Vehicle- and the story of Hiring and Renting Continue-Pawanputra Travels (GST AAR Rajasthan)

 

  1. Query:

What is the applicable GST rate on supply of non-air conditioned vehicles on hire to Indian Army.

 

  1. Facts:

The applicant has been awarded contract to provide both air conditioned and non-airconditioned vehicles on hire to the Indian Army. Serial no. 15 of the exemption notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 reads as follows:-

Heading 9964

Transport of passengers, with or without accompanied belongings, by-

 (b) non-airconditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire; or

 

  1. Observation by AAR

The essential ingredient of a contract carriage is that it plies under a contract for a fixed set of passengers, and does not allow any other passenger to board or alight from the carriage at will. Therefore ‘contract carriage’ carries passengers as a group and cannot pick up passengers en-route. The applicant does not satisfy the condition prescribed in clause (a) nor specified in clause (b) of clause (7) of section 2 of the Motor Vehicles Act, 1988 and accordingly, they 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 Central Tax (Rate) dated 28.06.2017.

AAR made another significant observation that even if the contract is assumed as ‘non-airconditioned contract carriage’, even then, serial no. 15 of the exemption notification no. 12/2017 Central Tax (Rate) dated 28.06.2017 does not exempt it from GST, as the “hired” non-airconditioned contract carriage are ‘excluded’ from exemption as specifically mentioned in the said notification.

 

  1. Held:

Service provided by applicant is not exempted under Notification No. 12/2017 dated 28.06.2017. The service provided is ‘rent a cab’ Service, which attracts IGST @ 5% (CGST @ 2.5% and SGST @ 2.5%) 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 (i.e. service procured from another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle) has not been taken Or IGST @ 12% (CGST @ 6% and SGST @ 6%) if input tax credit is availed.

 

  1. Comment:

The judgement holds that the activity to supply vehicles is an activity of renting of motor vehicle falling under 9966.

However, it is significant to note that AAR itself at one place has observed that even if the vehicle is held to be non-airconditioned contract carriage, then it also is excluded from the exemption notification as “hired” non-airconditioned contract carriage are ‘excluded’ from exemption.  AAR has thus observed that activity of Hiring and Renting are similar activity and no difference can be made between the two.

The judgement in a stark contract from the decision of AAR Maharashtra in the matter of SST Sustainable Transport Solutions India (P.) Ltd [2018] 100 taxmann.com 122 wherein differentiation was sought to be made between Hiring and Renting and activity of supplying buses to Nagpur Municipal Corporation was held to be not covered under Hiring of Vehicle.  However, in the present judgement activity of supply of motor vehicle to army has been held to be covered under Hiring of Vehicle.

Below is the gist of different meanings of attributed to the word hiring by CESTAT, High Court and AAR and the present AAR adds to the long list of confusion:

 

a) Service Tax Regime: Commissioner of Customs & Central Excise v. Sachin Malhotra [2014] 51taxmann.com 392 (Uttarakhand)-Difference between Renting and Hiring:

 “Hiring”, undoubtedly, the owner of the vehicle retains control and possession; he either drives the vehicle himself or employs somebody else to drive the vehicle; and the customer merely makes use of the vehicle by travelling in the vehicle on the basis of a contract that he will pay the requisite hire charges for the period he uses the vehicle. 

 

b) Service Tax Regime: Commissioner of Service Tax v. Vijay Travels [2014] 51 taxmann.com 72 (Gujarat)-No difference between Renting and Hiring

14.4 From the aforesaid discussion, it can be said that the petitioner cannot escape tax liability on the ground that the hiring is different from renting as the intention of the Government is to tax service provider of a service which involves both hiring and renting of a cab for a longer duration and distinction as sought to be carved out by the petitioner is not finding favour with this Court.

 

c) GST Regime: SST Sustainable Transport Solutions India (P.) Ltd [2018] 100 taxmann.com 122: Difference between Renting and Hiring

 

AAR Maharashtra following the decision of Kotak Mahindra Finance Ltd. v. Dy. CIT [2003] 130 Taxman 422/[2004] 265 ITR 114 by Hon’ble Bombay High Court held that “hire” means a transaction hirer has the option to purchase. The hirer becomes the owner of the asset/equipment immediately after the last installment is paid.

 

d) GST Regime:-Pawanputra Travels (GST AAR Rajasthan)-No Difference between Renting and Hiring

 

Conclusion:

There needs to be clarity on the issue with such differed judgements and views. Further under the GST Regime as well, although lawmakers were well aware of such dispute chose to use these words interchangeably in HSN 9966 and HSN 9964.

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