Case- Ishan Resins & Paints Ltd [2020] 113 taxmann.com 424 (AAR-WEST BENGAL)
1. Facts
The Applicant intends to lease trucks or tankers without operator to goods transport agencies (hereinafter called “GTA”) or any other persons.
2. Query
Whether supply of services by way of leasing of goods transport vehicles without operators to GTA would be exempt under serial no. 22 (b) of Notification no. 12/2017 CT(Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-06-2017), as amended from time to time (hereinafter collectively called ‘Exemption Notification’).
If the above service is not exempted what will be the appropriate classification and rate of tax in GST Act, 2017. Further, the applicant seeks clarification on whether the credit of input tax paid on purchasing of motor vehicles is admissible or not.
3. Observation by AAR
Meaning of Hiring and means transfer of right to use goods:- In Black’s Law Dictionary hiring is discussed as a kind of bailment, which is classifiable into five categories. One of them is ‘locatum’ or hiring. It is further subdivided into ‘locatio rei’ where the hirer gains temporary possession of the thing. Hiring, therefore, includes agreements where control and possession of goods are transferred to the hirer. It is known as the transfer of the right to use the goods. Sl. No. 22 of the Exemption Notification should, therefore, apply to all hiring of the means of transportation of goods, provided the hirer is a goods transport agency and no other specific provision is made for taxing the transfer of the right to use such goods.
Entry of Leasing restricts the meaning of hiring-A specific provision, however, is made under Sl. No. 17(iii) of the Rate Notification. The service of transferring right to use any goods for any purpose (whether or not for a specified period) is taxable under the said provision at the same rate as may apply to supply of the goods. Such a provision restricts the meaning of the term ‘hire’ in Sl. No. 22 of the Exemption Notification only to those transactions that do not involve transfer of the right to use the goods. Sachin Malhotra (supra) is relevant so far as it shows that the meaning attributable to an act of hiring is dependent upon the context in which the term is applied.
Activity of the Applicant is not covered under the meaning of Renting since it is only restricted to rental service with operators- The Applicant intends to lease out vehicles like trucks, tankers etc. that are designed to transport goods. The control and possession of the vehicle will be transferred to the lessee, who will engage operator and bear the cost of repair, insurance etc. It is, therefore, not classifiable under SAC 9966, which is restricted to rental services of transport vehicles with operator.
Activity of the Applicant is covered under 9973-The service is classifiable under SAC 997311 as leasing or rental services concerning transport equipment without operator. It amounts to the transfer of the right to use the goods and taxable under Sl. No. 17(iii) of the Rate Notification.
IT Credit is allowable to the applicant- Section 17(5)(a) of the GST Act does not allow input tax credit on inward supply of motor vehicles of a specific category (those meant for transportation of persons having seating capacity not exceeding thirteen persons). The restriction, therefore, does not apply to the goods transport vehicles. Sl. No. 17(iii) of the Rate Notification does not prohibit claiming input tax credit on the goods given on lease.
4. Held
The Applicant’s service of leasing goods transport vehicles is classifiable under SAC 997311 and taxable under Sl. No. 17(iii) of Notification No. 11/2017 – CT (Rate) dated 28-06-2017 (corresponding State No. 1135-FT dated 28-06-2017), as amended. The Applicant can claim input tax credit in accordance with law on the goods transport vehicles so leased out.
5. Comment
AAR has held that activity of applicant of leasing the vehicles to GTA is taxable under 997311 since entry “Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration” restricts scope of exemption entry relating to “Giving on Hire to a goods transport agency, a means of transportation of goods”. In this case, there are two aspects which might have been missed by AAR-
a) Service of Giving means of Goods on hire covered both under 9966/9973-It seems that it missed from observation of AAR that entry “Giving on Hire to a goods transport agency, a means of transportation of goods” is covered under both 9966 and 9973. Therefore, whether means of transport of goods are given with operator or without operator to Goods Transport Agency, both are exempted from the levy of tax by virtue of Entry No. 22 of Notification No. 12/2017CT (Rate) Dated 28th June 2017.
b) Even if observation of AAR is accepted then out of the two competing entries neither of which are overriding the other entry, assessee can opt for beneficial entry out of the two entries
Even if it is assumed that there are two competing entries which are not specifically overriding each other then in such case conclusion of AAR that entry “Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration” restricts scope of exemption entry relating to “Giving on Hire to a goods transport agency, a means of transportation of goods” seems to be on the wrong side.
If at all two competing entries are there and neither of them are expressly having overriding impact over the other then in such case, assessee can opt for the most beneficial of them. CBIC in Circular No. 82/01/2019-GST Dated 1st January 2019 also accepted the principle by referring to the same as follows:
The legal position in such situation has been clarified by Hon’ble Supreme Court in many cases that if there are two or more exemption notifications available to an assessee, the assessee can claim the one that is more beneficial to him. Therefore, from 31st January, 2018 to 31st December, 2018, IIMs can avail exemption either under Sl. No 66 or Sl. No. 67 of the said notification for the eligible programmes. In this regard following case laws may be referred
- H.C.L. Limited vs Collector of Customs [2001 (130) ELT 405 (SC)]
- Collector of Central Excise, Baroda vs Indian Petro Chemicals [1997 (92) ELT 13 (SC)]
- Share Medical Care vs Union of India reported at 2007 (209) ELT 321 (SC)
- CCE vs Maruthi Foam (P) Ltd. [1996 (85) RLT 157 (Tri.) as affirmed by Hon’ble Supreme Court vide 2004 (164) ELT 394 (SC)
It would be pertinent to highlight that Section 17(5)(b) also uses terms renting, hiring and leasing separately. Therefore, intention of the legislature also seems to that meaning of the hiring, leasing and renting are not overlapping and have to be treated as separately. On the other side, one might also feel that legislature themselves might not be very clear and therefore to be on safer side, all three have been mentioned in Section 17(5)(b) of CGST Act, 2017. It would only be clear once the maters start to travel the courts.
The view have not been settled since service tax law and some of our articles on the given subject are given below are as follows-
1. #GSTCase-92-Allowability of ITC on renting of Vehicles-Section 17(5) of CGST Act, 2017-Precarious case of Opposite Judgements by AAR Madhya-Pradesh and AAR/AAAR-West Bengal–
2. Difference between Passenger Transportation Service and Service by way of Renting of Vehicle and Allowability of ITC on Renting of Motor Vehicle-Applicability of Section 17(5) of CGST Act, 2017–
3. #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-
4. #GST-Case-31-Is there any difference between Renting of Motor Vehicle and Hiring of Motor Vehicle in GST Regime
