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#GSTCase-90-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

Mohana Ghosh [2019] 106 108 (AAR-WEST BENGAL)

1. Query

Whether credit is admissible of the input tax paid on the purchase of motor vehicles for the supply of cabs on rental basis.

 2. Facts

Applicant supplies rent-a-cab service. Applicant submits that people take the car on rent for the transportation of passengers.

3. Contention of the Appellant

Applicant refers to section 17(5)(a)(B) of the GST Act that allows credit of input tax paid on the purchase of motor vehicles when used for supplying passenger transportation service. Rent-a-Cab is, therefore, essentially associated with the transportation of passengers. GST paid on the purchase of motor vehicles for supplying rent-a-cab service should, therefore, be admissible in terms of section 17(5)(a)(B) of the GST Act.

Invoices have been raised for duration of renting, which is a fixed number of hours in a calendar month. If cab is requisitioned on holidays or for extra hours on a working day, an additional amount is charged irrespective of the distance traveled. Recipient has to pay a fixed amount whether or not the cab is moved. If, however, the cab travels beyond a threshold, the rent is calculated as a cost-plus, taking the distance traveled into account.

4. Observation by AAR

Applicable Provisions of CGST Act, 2017 as amended vide CGST Amendment Act, 2018 is Section 17(5)(a)(B) and Section 17(5)(b)(i). AAR distinguished between Passenger Transportation Service and Renting of Vehicle as follows:

  • Passenger Transportation Service: Passenger transportation service is classified under SAC 9964. The recipient of the service is a passenger travelling from one place to another. He may have varying degrees of control over the carriage, providing him with a certain measure of independence in choosing the destination and travel time, depending upon the nature of the contract, explicit or implied. But the supply remains that of transportation of the recipient as a passenger, and the consideration is paid for the distance traveled.
  • Renting of Motor Vehicle: Renting of any motor vehicle is classified under SAC 9966. The recipient of this service is not a passenger. He is enjoying the service of having provided a motor vehicle, with or without a driver, for use in whatever way he likes for the duration of the renting period. It may remain parked for the entire duration of renting without actual transportation of any person. Even when any person – the recipient of the service or someone of his choice – is being actually transported, the consideration is paid not for the distance traveled, but for renting the cab.

Thus, in passenger transportation service (SAC 9964) recipient of service is a passenger and he pays consideration for distance traveled, whatever be the degree of control he enjoys over the vehicle. In renting or hiring of a motor vehicle (SAC 9966) the recipient is provided the right to use the vehicle over a specified duration, whether he is a passenger or not. Distance traveled is taken into consideration to recover the cost of fuel. But travelling a certain distance is not the essence of the service.

Rent-a-cab is not defined in the GST Act. The Applicant provides cab rental service inter alia to institutions like West Bengal Postal Service. The recipient has to pay the Applicant a certain amount per month as consideration irrespective of what distance the cab travels in a particular month. Additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays. For the purpose of covering the cost of fuel, the distance traveled needs to be brought into play, but only if it crosses a certain threshold.

It is, therefore, clear from the above discussion that the nature of the service the Applicant provides is classifiable under SAC 9966 as renting of a motor vehicle. Credit of GST paid on purchase of motor vehicles or other inputs for the supply of the Applicant’s service is not, therefore, admissible in terms of section 17(5)(b)(i) of the GST Act.

5. Held

GST paid on the purchase of motor vehicles for supplying rent-a-cab service is not admissible for credit in terms of section 17(5)(b)(i) of the GST Act.

6. Comment

AAR has distinguished between Passenger Transportation Service and Renting of Vehicle. On that basis AAR has held that Provisions of Section 17(5)(a)(B) are not applicable on the applicant since the activity of the applicant is Renting of Motor Vehicle and said section allows Input Tax Credit on Passenger Transportation Service. Further they have held that Section 17(5)(b)(i) restrict the credit in case of renting of motor vehicle except when used for the purposes specified in clause 17(5)(a) and (aa).

Section 17(5)(a)(A) allows Input Tax Credit when vehicles are used for further supply of such motor vehicle. Neither the question was raised by the applicant and nor was considered by AAR that why renting of vehicle would not fall into further supply of such motor vehicle. Motor Vehicles or conveyance used for making taxable supply i.e. further supply of such vehicle or conveyance would not only include circumstances wherein they are being sold to other person but would also include motor vehicles or conveyance which are being supplied on rent. The words used are supplied, whether motor vehicle is supplied as a sale or on rent is immaterial. Provision of section has not linked the supply with transfer of ownership. Providing motor vehicle on rent has been also been classified as supply under the law. Therefore, Input Tax Credit in respect of supplying motor vehicles on rent would also be covered under this provision along with the person selling the motor vehicles.