GST Update on taxability of leasing of trucks without operator to GTA 105/2020-21

Services being provided by or to Goods Transport Agency has always been the talk of the town as these are the basic services which every business require. In this update we shall be discussing AAR ruling in the case of M/S ISHAN RESINS & PAINTS LIMITED wherein service of leasing trucks or tankers without operator is being provided to GTA by the applicant. The application was filed to know whether the supply attracts exemption under serial no. 22(b) of the Notification No. 12/2017 CT(Rate) dated 28.06.2017. It was also questioned that if the applicant is not eligible for exemption, then what will be the appropriate classification and GST rate applicable on the transaction. It was also inquired whether credit of input tax paid on purchasing of motor vehicles is admissible or not.
The applicant informed that the lessee will enjoy possession of the vehicle and provide the operator, bear the cost of fuel, maintenance, insurance etc. It was contended that Sl. No. 22 of the exemption notification, the relevant portion of which is being reiterated below uses the term hire which is different from leasing out a vehicle without operator where the control and possession is transferred to the lessee.

*Sl. No.*	*Chapter, Section, Heading, Group or Service Code (Tariff)*	*Description of Services*	*Rate (per cent.)*	*Condition*
22	Heading 9966 or Heading 9973	Services by way of giving on hire – (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or (b) to a goods transport agency, a means of transportation of goods.	Nil	Nil

The applicant argued that hiring mentioned in the above entry does not include renting or leasing of vehicles when possession and control of the vehicle are passed on to the hirer. As the applicant intends to transfer the possession and control to the lessee, the above entry of Exemption Notification will not apply. The applicant further contends that the above transaction shall fall under Entry No. 17(iii) of the rate notification no. 11/2017 dated 28.06.2017 which reads as “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.”
After hearing the contention of applicant, referring to the definition of ‘hiring’, Advance Ruling had come to a conclusion that the transaction being discussed shall be classifiable under SAC 997311 as leasing or rental services concerning transport equipment without operator. This shall be taxable as per Entry No. 17(iii) of the rate notification no. 11/2017 dated 28.06.2017 as the applicant intends to transfer the goods along with the right to use them. Reliance has been placed on the judgment issued by Uttarakhand High Court in the case of COMMISSIONER OF CUSTOMS & CENTRAL EXCISE VS SACHIN MALHOTRA 12015 (37) STR 684 (UTTARAKHAND).
Answering the second question, the AAR has discussed that Section 17(5)(a) of the GST Act does not allow input tax credit on inward supply of motor vehicles of a specific category (those meant for transportation of persons having seating capacity not exceeding thirteen persons). The restriction does not apply to the goods transport vehicles.
After analysing the above ruling, we submit that hiring, leasing and renting are three different terms which have a very thin line of difference among them and it is very important to know their exact meaning in order to determine the applicability of tax. Hence, there is dire need for the government to elucidate on these terms. Now the question arises is what would be the tax implication if the applicant gives the vehicle along with the operator and also includes the cost of fuel in the services being provided by him? In such case, whether the transaction would be considered as that of hire and eligible for exemption under serial no. 22(b) of the notification no. 12/2017 CT(Rate) dated 28.06.2017. In our opinion, in such case, the transaction would be an independent transaction of providing transportation of goods service by the applicant and consequently, reference may be made to the recent advance ruling pronounced in the case of M/s Liberty Translines discussed in our GST update no. 91/2020-21wherein it was held that if the services of GTA are sub-contracted, the sub-contractor cannot be considered as providing the services of GTA. It was held that the sub-contractor would not be liable to pay GST as it would be exempt because transportation services of goods by road other than through GTA is exempt.

This is solely for educational purpose.
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GST Update on taxability of leasing of trucks without operator to GTA 105/2020-21

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