2022 (4) TMI 1139 - AAR - GST

Classification of services - Valuation - Pure Agent - portion of the certain additional services viz., payment of road tax/registration fees, insurance premium, etc., rendered by the applicant in the course of its Leasing of the vehicle/s to the Lessee - falls under the category of services of a pure agent or not - recovery of Motor Vehicle Registration fee, Motor Vehicle life Tax RTO charges etc., by the applicant from the lessee for the registration of the vehicle - forming part of taxable supply or not - HELD THAT - It is seen that they enter into a Master Agreement for 'operating lease' with their lessee outlining the terms and conditions for such operating lease to be extended by them to the lessee. It is also seen that the applicant enters into supplemental Operating Lease agreement when the Lessee approaches them to lease a desired vehicle wherein the terms and conditions of the Master Agreement are referred and agreed to be adopted. Thus, it is evident that the applicant extends the services of 'Operating Lease' to the Lessee. A careful reading of some of the following clauses of the agreement reveals that the ownership of the leased equipment does not pass on to the Lessee and remains with the Applicant, as is the dicta of an Operating Lease - Operational leasing is a taxable supply of service under the GST Act. From the flow chart indicating the leasing supplies, it is seen that presently, the applicant arrives at the EMI considering the entire value including the on road components charged on them and the lease rental is fixed on monthly basis. Valuation of supply - whether the 'On-road Component' raised through a Debit note to be considered as additional services in which the applicant is a 'Pure agent' or should form part of the value of supply of 'Operational lease' undertaken by them? - HELD THAT - As per Section 15, the value of a supply, where the supplier and the recipient are not related and the price is the sole consideration, is the transaction value, which is the price actually paid or payable for the said supply. In the case at hand, the applicant purchases the vehicle identified by the lessee from the dealer also identified by the lessee and supplies the vehicle as 'Operational lease'. The supply under consideration in the instant case, is the supply of the vehicle by the dealer to the applicant. The dealer and the applicant are not related persons and therefore the consideration charged by the dealer for the supply of the vehicle to the applicant is the Transaction Value' for the purposes of GST. From the submissions, it is seen that the Dealer raises a Tax Invoice' towards the basic price of the vehicle with the applicable GST levies and a 'Debit Note' towards the 'On-road Component' comprising of Registration charges, road tax, etc. Payment of On-road components such as registration fees, Insurance fees etc., are mandatory for the vehicle to be able to be used on road, as per the provisions of Motor Vehicles Act - In the case at hand, the vehicle is given on 'Operating lease', wherein the ownership of the vehicle is held by the applicant and through the terms and conditions for the leasing transactions, the applicant has permitted the lessee to register the vehicle in the name of the lessee. The fact that the vehicle is allowed to be registered in the name of the lessee does not alter the other fact that the applicant is the owner of the vehicle and the lessee is a mere bailee of the goods on account of the applicant - The applicant is not paying these charges on behalf of the lessee to the dealer but is paying the charges to make the vehicle usable on road following the provisions of Motor Vehicle Act and related statutory provisions etc before leasing such vehicles to the lessee for operations. The applicant has failed to establish themselves as a 'pure agent' and therefore the expenditure or cost incurred by the applicant in respect of the 'On-road components' are incurred by them in the transaction of Purchase of vehicle' for the supply of 'Operational lease' to their recipient. In this connection, it is pertinent to note that section 15(2) of the GST Act, provides that any tax/duty levied under any other law and any incidental expenses incurred should also form a part of the Transaction Value'. Applying the same to the case at hand, the 'On-road components' are incidental charges incurred by the applicant in purchasing the vehicles for supply under the 'Operational lease' to the Lessee. Therefore, the value of 'On-road component' cannot be considered as additional charges or the applicant can't be held as acting as a Pure agent' in respect of supply of the 'On-road Component'. Additional payments made by the Applicant towards Motor Vehicle Registration fee, Motor Vehicle life Tax, RTO charges etc., for getting the vehicle to use on the Road, which are recovered from the Lessee, forms part of the supply of Leasing services and therefore should form part of the taxable supply.

Summary

Issues Involved:
1. Whether the applicant can be construed as a pure agent under Rule 33 of the CGST Rules 2017 and TNGST Rules 2017.
2. Whether the registration & Motor Vehicle life tax & RTO charges, insurance premium, etc., paid by the applicant and reimbursed by the lessee should be excluded from the value of the supply transaction (leasing).
3. If not considered as a pure agent, whether such payments can be treated as separate services with GST applicable at the general rate of 18%.

Issue-wise Detailed Analysis:

1. Whether the applicant can be construed as a pure agent under Rule 33 of the CGST Rules 2017 and TNGST Rules 2017:

The applicant, a Non-Banking Financial Company, leases vehicles and pays for additional services like road tax, registration fees, and insurance premiums, which are then reimbursed by the lessee. The applicant argued that these payments should be treated as those made by a pure agent, thereby excluding them from the value of the taxable supply.

The ruling examined the criteria for a pure agent under Rule 33, which requires:
- The supplier acts as a pure agent of the recipient when making payments to third parties on authorization.
- Payments made by the pure agent on behalf of the recipient are separately indicated in the invoice.
- The supplies procured by the pure agent from third parties are in addition to the services supplied on their own account.

The ruling found that the applicant did not meet these criteria. The applicant did not have a contractual agreement to act as a pure agent, and the payments for on-road components were made in their own interest to make the vehicle roadworthy, not on behalf of the lessee.

2. Whether the registration & Motor Vehicle life tax & RTO charges, insurance premium, etc., paid by the applicant and reimbursed by the lessee should be excluded from the value of the supply transaction (leasing):

The ruling emphasized that the value of supply under GST includes any incidental expenses incurred by the supplier in respect of the supply of goods or services. The applicant’s payments for registration fees, motor vehicle life tax, and insurance premiums were deemed incidental expenses necessary to make the vehicle roadworthy for leasing. These payments were thus considered part of the value of the supply of the leasing services and could not be excluded.

3. If not considered as a pure agent, whether such payments can be treated as separate services with GST applicable at the general rate of 18%:

The ruling concluded that the payments made by the applicant for on-road components are part of the leasing service's value and should be taxed at the rate applicable to the leasing service, which is 28% along with the applicable cess. The suggestion to treat these payments as separate services with a general GST rate of 18% was not accepted.

Conclusion:

1. The applicant is not considered a pure agent under Rule 33 of the CGST/TNGST Rules 2017.
2. Payments made by the applicant for Motor Vehicle Registration fee, Motor Vehicle life Tax, RTO charges, etc., which are recovered from the lessee, form part of the value of the supply of leasing services and are taxable as such.
3. The ruling did not accept the proposal to treat these payments as separate services with a lower GST rate.

Ruling:
1. The additional services rendered by the applicant in the course of leasing vehicles do not fall under the category of "services of a pure agent."
2. Additional payments made by the applicant for on-road components, which are recovered from the lessee, form part of the taxable supply of leasing services.