ITC of GST paid on purchase of motor vehicles for supplying rent-a-cab service not admissible in terms of section 17(5)(b)(i) of the GST Act
ABCAUS Case Law Citation:
ABCAUS 3007 (2019) (06) AAR
The Applicant was supplying cabs on a rental basis. He sought a ruling from the Authority for Advance Ruling (AAR) on whether credit is admissible of the input tax paid on the purchase of motor vehicles for the supply of the above service.
The question was admissible for advance ruling under section 97(2)(a) & (d) of the GST Act. The concerned officer from the Revenue admitted that question raised in the application was not pending or decided in any proceedings of the GST Act.
The applicant submitted that he supplied rent-a-cab service, as defined in the Finance Act, 1994. 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.
The Applicant submitted that people take the car on rent for the transportation of passengers. 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.
The AAR observed that the amended provisions of section 17(5)(b)(iii) of the GST Act do not contain reference to the rent-a-cab service. However, post amendment, input tax credit shall not be available in respect of supply of the service of renting or hiring of motor vehicles in terms of section 17(5)(b)(i) of the GST Act, unless the inward and the outward supplies are of the same category, standalone or as an element of a taxable composite or mixed supply’
Section 17(5)(a) of the Act provides that input tax credit shall not be available on inward supply of motor vehicle for transportation of persons having approved seating capacity of not more than thirteen person (including the driver), except when they are used for making the following taxable supplies, namely –
(A) a further supply of such motor vehicles; or
(B) transportation of passengers: or
(C) imparting training on driving such motor vehicles.
The Applicant argues that rent-a-cab service qualifies to be treated as a supply of passenger transportation service.
The AAR observed that passenger transportation service is classified under the SAC 9964. Transportation of passengers, with or without accompanied belongings, is taxable under Sl No. 8 of Notification No. 11/2017 – CT (Rate) dated 28/06/2017 (corresponding -State Notification No. 1135 – FT dated 28/06/2017, as amended from time to time (hereinafter collectively called the Rate Notification). As obvious from reference to the accompanied belongings’ 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 travelled.
The AAR noted that Rent-a-cab is not defined in the GST Act. Nature of the Applicant’s service was, therefore, derived from what was stated in the Application and what can be ascertained from the invoices.
The Applicant provided cab rental service inter alia to institutions like State Postal Service. The recipient, had 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 travelled needs to be brought into play, but only if it crosses a certain threshold.
The AAT opined that it was clear from the above that the nature of the service the Applicant provided was 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 was not, therefore, admissible in terms of section 17(5)(b)(i) of the GST Act.
Accordingly, the AAR held that 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