2018 (12) TMI 145 - AAR - GST

Classification of services - Supply of Services or not - Services to NMC by providing the Busses along with Driver, Fuel & Maintenance for use of General Public at Large - under which Chapter Heading / Service Code the activity is required to be classified? - Held that - The applicant has entered into an agreement with NMC and as per the agreement, they are providing the Services of Running AC Green City Buses for Transport of General Public, for which NMC is paying them Service Charges calculated on the Total Run effective kilometers and the fare from the passengers is collected by NMC - NMC is providing transportation services to the passengers and the applicant, for such transportation, is supplying to NMC Buses along with drivers, fuels, maintenance, etc. In effect, it is found that there is no connection between the applicant and the passengers. The applicant is just hiring out these AC Buses to NMC and it is also found that the effective control is with the applicant so far as the Buses are concerned which are provided to NMC. Also the Bus Routes are decided by NMC as also the Bus Fares, which are collected from the passengers. Hence it is crystal clear that in the subject case the transaction would be of the nature of transfer of right to use any goods and the amounts received by them on kilometer basis would be considered as hiring charges. As per sub-clause (0 of clause 5 of Schedule II appended to both, the CGST Act, 2017 and the MGST Act, 2017 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 would be considered as Supply of Services - In the subject case the applicant vide Service Provider Agreement entered into by them with NMC have transferred of right to use the goods i.e. AC Buses belonging to them. The said rights as per the agreement have been transferred to NMC for a period of 15 years from the commercial operations date (COD). COD in the agreement has been defined as the date on which period of 6 months are completed from the date of execution of the agreement. In the subject case there is transfer of the right to use any goods (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/hire, 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 (ii) 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. Ruling - The activity undertaken by the applicant in the subject case is supply of services and will be classified under Sl. No 10(ii), Heading 9966 of the Notification No 11/2017-Central Tax (Rate) dated 28th June 2017.

Summary

Issues Involved:
1. Classification of the activity under the appropriate Chapter Heading/Service Code.
2. Determination of the applicable GST rate for the services provided.
3. Clarification on whether the transaction is considered as transfer of right to use goods.
4. Consideration of whether the service falls under rental services of transport vehicles.
5. Examination of the applicability of specific GST notifications and rates.

Issue-wise Detailed Analysis:

1. Classification of the Activity:
The applicant, SST Sustainable Transport Solutions India Private Limited, entered into an agreement with Nagpur Municipal Corporation (NMC) for the operation and maintenance of AC Green Buses running on Bio Ethanol Fuel. The applicant provides buses along with drivers, fuel, and maintenance services. The service charges are calculated based on effective run kilometers, and NMC collects the fare from passengers. The applicant sought confirmation on the classification of their activity under the appropriate Chapter Heading/Service Code.

2. Determination of the Applicable GST Rate:
The applicant contended that their services should be classified under Chapter Heading 9966, which pertains to services by way of giving on hire to a state transport undertaking. However, the concerned officer argued that the services provided fall under service code 996601, attracting GST at 5% (with no ITC) or 12% (with ITC), as the vehicles are rented to NMC, not a state transport undertaking.

3. Clarification on Transfer of Right to Use Goods:
The applicant argued that the transaction is of the nature of transfer of right to use goods, supported by various judicial precedents. The agreement with NMC indicated that the applicant provides buses with drivers, fuel, and maintenance, while NMC decides the bus routes and collects fares. The applicant contended that this arrangement constitutes a transfer of the right to use goods for a specified period, thus classifying the activity as a supply of services under sub-clause (f) of clause 5 of Schedule II of the GST Act.

4. Consideration of Rental Services of Transport Vehicles:
The authority observed that the applicant is essentially hiring out AC buses to NMC, with effective control remaining with the applicant. The transaction was considered as rental services of transport vehicles with operators, falling under Sr. No. 10, Heading No. 9966, sub-clause (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, attracting CGST and SGST at 9% each.

5. Examination of Specific GST Notifications and Rates:
The applicant referred to Notification No. 12/2017-State Tax (Rate) dated 29th June 2017, which exempts stage carriages other than air-conditioned stage carriages from GST. However, this exemption was found inapplicable as the buses provided were air-conditioned. The authority concluded that the services rendered by the applicant to NMC are taxable under Sr. No. 10(ii) of Notification No. 11/2017-Central Tax (Rate), with the applicable GST rate being 9% each for CGST and SGST.

Conclusion:
The Authority for Advance Ruling determined that the activity undertaken by the applicant is classified under Sl. No. 10(ii), Heading 9966 of Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017. The services provided by the applicant to NMC are considered rental services of transport vehicles with operators, attracting CGST and SGST at 9% each. The transaction is recognized as a supply of services involving the transfer of the right to use goods for a specified period, and the exemption for non-air-conditioned stage carriages does not apply.