2025 (1) TMI 188 - AAAR - GST

Classification of goods - leasing of electric vehicles (E-Bikes/ EVs) without operator - to be classified under the heading 9973 or not - applicability of Sl. No. 17 (viia) or (iii) of the Notification No. 11/2017-CT (R) dated, 28 th June, 2017 as amended vide Notification No. 20/2019 30th September, 2019? - rate of tax - HELD THAT - On examination of the terms and conditions of the Vehicle Lease Agreement, it is seen that the lessor agrees to give and deliver over to the lessee Electric Vehicles (EVs) on lease for forty-eight months unless termination of the contract/agreement. The lessee shall be responsible for regular repair and maintenance of the EVS at his own cost and shall bear and pay running expenses of the EVs. The lessee shall be solely responsible for timely renewal of all legal documents i.e. Registration Certificate, Road Permit, Fitness Certificate and Insurance Policies etc. mandatory for running of the EVs as per applicable laws during the tenure of agreement. The lessee shall keep the EVs insured at all times during the subsistence of this agreement against all risks and bear all the premiums payable to insurance company. In the event of rejection of insurance claim the onus of bearing the repair cost shall be on the lessee. It is also apparent that all the attributes laid down by the Hon'ble Supreme Court are evident in this transaction as per the Vehicle Lease Agreement. The said agreement is very clear that the goods available for delivery are 'e-bikes' which are goods. The said agreement provides legal rights to use e-bikes to the lessee. The lessor, during the continuance of the agreement cannot assign, pledge, mortgage, lend or part with the possession of the EVs and cannot allow the said EVs to be used by anybody else except as per the terms of this agreement. So, in the present transaction, it can be said that effective control and physical possession of the goods have been transferred by the supplier Applicant (lessor) to the recipient of the goods (lessee). While using such e-bikes or during the tenure of agreement, the vehicles continue to be in possession of the lessee and the transaction involves transfer of right to use such goods. In other words, the lessee has the possession effective control of the goods in all respect. Reliance is also placed on the judgment of Hon'ble Apex Court in THE GREAT EASTERN SHIPPING CO. LTD. VERSUS STATE OF KARNATAKA OTHERS 2019 (12) TMI 225 - SUPREME COURT , wherein the Hon'ble Court while interpreting the expression transfer of right to use the goods' i.e. in respect of use of a vessel, in a VAT matter (which is the extended definition of deemed sale as per Article 366 (29A) (d) of the Constitution of India) had observed that the vessel was available for delivery and in fact, had been delivered; that there was no dispute as to the vessel and charter had a legal right to use the goods, and the contractor had no right to give the vessel for use to anyone else. This decision is fully applicable to be given fact of the present matter. Conclusion - Leasing of electric vehicles (E-Bikes) without operator is classifiable under the heading 9971 i.e. Financial and related services under entry Sl No. 15 (ii) of Notification No. 11/2017-CT (R) dated, 28th June, 2017 as amended vide Notification No. 20/2019-CT (R) dated, 30th September, 2019 and the rate of tax will be the same rate as applicable on supply of like goods involving transfer of title in goods.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question presented in this judgment is whether the leasing of electric vehicles (E-Bikes/EVs) without an operator can be classified under the heading 9973 - "Leasing or rental services without operator" as per Sl. No. 17 (viia) or (iii) of the Notification No. 11/2017-CT(R) dated 28th June 2017, as amended by Notification No. 20/2019-CT(R) dated 30th September 2019. The issue revolves around the correct classification and applicable tax rate for the leasing of electric vehicles.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework involves the Central Goods and Services Tax Act, 2017, and the Odisha Goods and Services Tax Act, 2017, which are in pari materia. The classification of services is guided by Notification No. 11/2017-CT(R) and its amendments. The Supreme Court's decision in the BSNL case provides a precedent for determining the transfer of the right to use goods.

Court's interpretation and reasoning:

The court examined the nature of the lease agreement to determine whether it constitutes a financial lease or an operating lease. It concluded that the lease agreement between the applicant and the lessee is a financial lease, as it transfers the risks and returns to the lessee. The court emphasized the distinction between financial and operating leases, focusing on aspects such as the term of the lease, maintenance responsibilities, risk of obsolescence, cancellation terms, and purchasing options.

Key evidence and findings:

The court analyzed the vehicle lease agreement, noting that the lease term covers a major part of the economic life of the EVs, and the lessee is responsible for maintenance, insurance, and legal compliance. The lessee also has an option to purchase the EVs after the lease term, indicating a financial lease.

Application of law to facts:

The court applied the principles from the BSNL case to determine that the transaction involves the transfer of the right to use goods, as all five attributes outlined by the Supreme Court are present. The lease agreement demonstrates the transfer of effective control and possession of the EVs to the lessee, satisfying the criteria for a transfer of the right to use goods.

Treatment of competing arguments:

The applicant argued for classification under heading 9973, but the court found that the transaction aligns with heading 9971, as it involves financial leasing services. The court rejected the classification under heading 9973 due to the nature of the lease agreement and the transfer of rights involved.

Conclusions:

The court concluded that the leasing of electric vehicles without an operator is classifiable under heading 9971, as it constitutes financial and related services. The applicable tax rate is the same as that on the supply of like goods involving the transfer of title in goods.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"91-To constitute 'a transaction for the transfer of the right to use the goods, the transaction must have the following attributes: (a) There must be goods available for delivery; (b) There must be a consensus ad idem as to the identity of the goods; (c) The transferee should have a legal right to use the goods - consequently all legal consequences of such use including any permissions or licenses required, therefore should be available to the transferee; (d) For the period during which the transferee has such legal right, it has to be the exclusion to the transferor; this is the necessary concomitant of the plain language of the statute viz. a 'transfer of the right to use' and not merely a license to use the goods; (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others."

Core principles established:

The judgment establishes that the classification of leasing services under GST depends on the nature of the lease agreement, specifically whether it is a financial or operating lease. The transfer of the right to use goods involves transferring effective control and possession, aligning with the criteria set by the Supreme Court in the BSNL case.

Final determinations on each issue:

The court determined that the leasing of electric vehicles without an operator falls under heading 9971 for financial and related services, with the applicable tax rate being the same as that on the supply of like goods involving the transfer of title in goods.