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2024 (3) TMI 259 - AAR - GSTClassification of service - service of providing passenger buses on rent/lease by the applicant to Kerala State Road Transport Corporation (KSRTC) - chargeable to GST @ 18% under Tariff Heading 9966 i.e., 'Rental Services of Transport Vehicles' in terms of Entry No. 10(iii) of Notification No. 11/2017-CT Rate) dated 28.06.2017 or not - exemption from payment of GST under Tariff Heading 9966. i.e. 'Services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers' in terms of Notification No. 12/2017-CT(R) dated 28.06.2017 or not - nature of services provided by the Applicant - rate of tax applicable on such services. HELD THAT - As per the agreement, the applicant has to provide the required specification of the leased buses along with trained drivers for the operation of such buses. Further, the applicant is solely responsible for operation of the buses in compliance with the routes and timings provided by the KSRTC. The fuel cost of the buses shall be borne by the KSRTC. The applicant will receive service/rental charges daily on a kilometre basis and also additional consideration proportionate to the revenue earned by display of advertisement in the buses and also transportation of cargo/luggage in the buses - Kerala State Road Transport Corporation Ltd is established by the Government of Kerala by Notification dated 15.03.1965 under the Road Transport Corporations Act, 1950 for the operation and management of public transport in the State of Kerala and accordingly is a state transport undertaking under Section 2 (42) of the Motor Vehicles Act, 1988 and consequently a state transport undertaking as defined in Para 2 (zzk) of Notification No. 12/2017 CT (Rate) dated 28.06.2017. The distinction between the activity of renting and hiring and consequently the eligibility of exemption from GST for transactions in the nature of renting of motor vehicles to state transport undertakings in as much as the exemption entry at SI No. 22 of the said notification employs the words services by way of giving on hire became a subject matter of dispute in the wake of ruling issued by an Authority for Advance Ruling that the entry at SI. No. 22 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 exempts services by way of giving on hire vehicles to a State Transport Undertaking or a local authority and not renting of vehicles to them relying on certain case laws pertaining to the erstwhile service tax regime. In view of the clarification issued by CBIC in Para 8.4 of Circular No. 164/20/2021-GST dated 06.10.2021 that the expression giving on hire includes renting of vehicles the transaction of renting vehicles meant to carry more than twelve passengers to a State Transport Undertaking is eligible for the exemption at SI. No. 22 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The services being provided by the applicant as per Agreement dated 15.09.2017 to KSRTC; a State Transport Undertaking by way of renting / lease of buses /motor vehicles meant to carry more than twelve passengers is exempted from GST as per entry at SI. No. 22 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Issues Involved:
1. Applicability of GST rate for providing passenger buses on rent/lease. 2. Exemption from GST for providing passenger buses on rent/lease. 3. Nature of services and applicable tax rate if the above issues are resolved negatively. Summary: Issue 1: Applicability of GST rate for providing passenger buses on rent/lease The applicant sought to determine whether the service of providing passenger buses on rent/lease to Kerala State Road Transport Corporation (KSRTC) is chargeable to GST at 18% under Tariff Heading 9966, 'Rental Services of Transport Vehicles,' as per Entry No. 10(iii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017. The applicant contended that the transaction is in the nature of renting, not hiring, and thus should be taxed at 18%. Issue 2: Exemption from GST for providing passenger buses on rent/lease The applicant also queried whether the service of providing passenger buses on rent/lease to KSRTC is exempt from GST under Tariff Heading 9966, 'Services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers,' as per Notification No. 12/2017-CT(R) dated 28.06.2017. The applicant argued that KSRTC, being a state transport undertaking, should qualify for this exemption. Issue 3: Nature of services and applicable tax rate if the above issues are resolved negatively This issue was considered only if the answers to the first two questions were negative, which was not the case here. Contentions and Arguments: The applicant provided detailed contentions, including the nature of the agreement with KSRTC, the responsibilities of both parties, and relevant clauses from the agreement that support their view. They argued that the transaction should be considered renting rather than hiring, citing various legal precedents and judgments. The applicant also highlighted that KSRTC has effective control over the buses, further supporting their stance. Discussion and Conclusion: The Authority for Advance Ruling examined the agreement and the nature of the transaction. They referred to the relevant notifications and a clarification issued by CBIC in Circular No. 164/20/2021-GST dated 06.10.2021, which stated that "giving on hire" includes renting of vehicles. Consequently, the transaction of renting vehicles to a State Transport Undertaking is eligible for the exemption under SI. No. 22 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Ruling: 1. The service of providing passenger buses on rent/lease to KSRTC is not chargeable to GST at 18% under Tariff Heading 9966 as per Entry No. 10(iii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017. 2. The service of providing passenger buses on rent/lease to KSRTC is exempt from GST under Tariff Heading 9966 as per SI. No. 22 of Notification No. 12/2017-CT(R) dated 28.06.2017. 3. The third question is not relevant in view of the answer to the second question.
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