SST Sustainable Transport Solutions India (P.) Ltd  100 taxmann.com 122 (AAR – MAHARASHTRA)
What would be the applicable tax rate activity of providing Buses along with Driver, Fuel & Maintenance for use of General Public at Large Services for Transport of General Public against Service Charges calculated the Total Run effective kilometers?
The Nagpur Municipal Corporation was entrusted the task of implementing the AC Green Buses and for this purpose it sought service provider for Purchase, Supply, Operation, Maintenance etc. of AC Green Buses. The applicant provided Buses along with Driver, Fuel & Maintenance for use of General Public at Large Services for Transport of General Public to Nagpur Municipal Corporation (hereinafter referred as “NMC”). NMC paid to the applicant Service Charges calculated as per agreement on the Total Run effective kilometers and NMC collects the fare from the passengers.
- Contention of the Applicant:
The services should classify under chapter heading 9966 i.e. Services by way of giving on hire – (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve Passengers.
- Observation by AAR
- Transaction in the nature of transfer of right to use goods
Prima facie, the transaction would be of the nature of transfer of right to use any goods for any purpose following the ratio laid down in the judgement by in case State of Tripura v. Tripura Bus Syndicate 2001 taxmann.com 1955 (Gauhati), Godavari Finance Co. v. Degala Satyanarayanamma  5 SCC 107 and Rajasthan State Road Transport Corpn. v. Kailash Nath Kothari  7 SCC 481. The ratio laid down in the above judgement was that the even though driver would continue to be on the pay roll of the owner, he has to act under the instructions, control and command of the conductor and other officers and therefore effective control is transferred to hirer.
- Why it is not a case of Services by way of giving on hire to a state transport undertaking
To be falling under the entry, the transaction has to be in the nature of hiring of vehicle. The paramount question is whether classification of transaction is of the nature of hiring services. In a lease, ownership lies with the lessor. The lessee has the right to use the equipment and does not have the option to purchase. Whereas in hire purchase, the hirer has the option to purchase. The hirer becomes the owner of the asset/equipment immediately after the last instalment is paid. AAR followed the ratio laid down in the matter of Kotak Mahindra Finance Ltd. v. Dy. CIT  130 Taxman 422/ 265 ITR 114 by Hon’ble Bombay High Court. Therefore, AAR observed that the present transaction does not fall under the category of services by way of giving on hire to a state transport undertaking.
The subject matter of the agreement is for transfer of the right to use Buses for any purpose i.e. for transportation purpose and for a specified period of 15 years for cash. Thus, as per sub-clause (f) of clause 5 of Schedule II appended to both, the CGST Act, 2017 and the MGST Act, 2017 the subject activity of the applicant would be considered as Supply of Services.
The applicant is rendering services to NMC by way of giving out on rent, buses which are further used by NMC for transportation of passengers. Such renting of Buses by the applicant squarely falls under Sr. No. 10, Heading No. 9966 sub-clause (iii) as rental Service of transport vehicles, in this case with operators and therefore attracts CGST and SGST @ 9% each on remuneration received for such services rendered by the applicant.
And the legacy from the previous regime continues. Under the Service Tax Regime, the difference between renting and hiring was a major bone of contention and AAR has taken the same to another level with adding another interpretation from its side.
- Difference between Renting and Hiring:- upheld
Difference between “Renting” and “Hiring” have been accepted in Commissioner of Customs & Central Excise v. Sachin Malhotra  51 taxmann.com 392 (Uttarakhand); R.S. Travels v. Commissioner of Central Excise, Meerut  15 STT 437 (NEW DELHI – CESTAT); Commissioner of Central Excise, Nagpur v. P.B. Bobde  64 taxmann.com 126 (Mumbai – CESTAT); Sunil L. Parmar v. Commissioner of Service-tax, Ahmedabad  14 taxmann.com 46 (Ahd. – CESTAT); Wheels Tourists Operator v. Commissioner of GST & Central Excise  91 taxmann.com 370 (Chennai – CESTAT); M/S. Om Sakthi Travels vs Commissioner Of Service Tax, CESTAT-CHENNAI. Relevant Extract of Commissioner of Customs & Central Excise v. Sachin Malhotra  51taxmann.com 392 (Uttarakhand) is being reproduced herewith:
But, what is of fundamental importance and constitutes the distinguishing feature between “rent-a-cab” and “hiring” is that, in the case of “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. Unlike the same, in the case of rent-a-cab, as is provided in the Motor Vehicles Act, the person is enabled to take the vehicle with him wherever he pleases, subject, no doubt, to the terms of the contract between the parties and he uses the vehicle as his own subject to his paying the rent.
a) There is no difference between renting and hiring: Upheld
There is no difference between renting and hiring has been upheld in the matter of Commissioner of Service Tax v. Vijay Travels  51 taxmann.com 72 (Gujarat); Express Tours And Travels Pvt. … vs Commissioner Of Central Excise on 8 April, 2005. Relevant Extract of the Judgement in Commissioner of Service Tax v. Vijay Travels  51 taxmann.com 72 (Gujarat) is as follows:
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.
b) AAR gave another dimension to the issue and distinguished Hiring and Renting through another characteristic
AAR held that instant transaction falls under Sr. No. 10, Heading No. 9966 sub-clause (ii) as rental Service of transport vehicles of Notification No. 11/2017-Central Tax Rate instead of Sr. No. 22 of Heading No. 9966 i.e. Services by way of giving on hire – (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve Passengers on account. The primary reason for the same was that entry No. 22 uses the word hire and the as per AAR following the decision of Bombay High Court “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.
Conclusion: There needs to be a clarification on the issue as the majority view prevalent under service tax regime which has been also been followed in latest decision given by CESTAT in April 2018 in Wheels Tourists Operator v. Commissioner of GST & Central Excise  91 taxmann.com 370 (Chennai – CESTAT). The decision upholds difference between Hiring and Renting.
Further under the GST Regime as well, although lawmakers were well aware of such dispute chose to use these words interchangeably in HSN 9966 i.e. renting of transport vehicles. The dispute lies in the fact that wherein Entry 10(i) of Notification No. 11/2017-Central Tax Rate falling under HSN 9966, levies tax at the rate of 5% on
“Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient”
However Entry No. 22 of Notification No. 12/2017-Central Tax Rate falling under the same HSN 9966, exempts only Services by way of giving on hire – (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or (b) to a goods transport agency, a means of transportation of goods. (c) motor vehicle for transport of students, faculty and staff, to a person providing services of transportation of students, faculty and staff to an educational institution providing services by way of pre-school education and education upto higher secondary school or equivalent.
Therefore, if the difference between hiring and renting continues, the exemption entry might lose its relevance and majority of transactions would be out of the exemption entry.