2018 (12) TMI 145 - AAR - GST

Ruling: Transport Services to Municipal Corporation Classified Under GST Notification

The Authority for Advance Ruling classified the activity of SST Sustainable Transport Solutions India Private Limited under Sl. No. 10(ii), Heading 9966 ... Transfer of the right to use any goods - rental services of transport vehicles - Heading 9966 - Schedule II clause 5(f) - supply of services - taxable at 9% CGST and 9% SGSTTransfer of the right to use any goods - Schedule II clause 5(f) - rental services of transport vehicles - Heading 9966 - taxable at 9% CGST and 9% SGST - supply of services - Classification of applicant's contract with Nagpur Municipal Corporation and the applicable rate of tax - HELD THAT: - The agreement between the applicant and NMC transfers to NMC the right to use the applicant's AC buses for transportation purposes for a specified period (15 years from COD), with remuneration based on kilometers run, invoicing and assured minimum kilometres, and clauses for annual assured payment and excess kilometre payment. Consequently the activity constitutes a 'transfer of the right to use any goods' within the meaning of sub-clause (f) of clause 5 of Schedule II and thereby is a supply of services. Such renting/hiring out of buses with operators falls within Sr. No. 10, Heading 9966 as 'rental services of transport vehicles ... with or without operators, other than (i) above'. The Department's communication regarding nil rate for stage carriage pertains to NMC's passenger-transport service and does not cover the hire/rental transaction between the applicant and NMC. Therefore the amounts received by the applicant for providing buses on rent/hire are taxable under the said entry, attract CGST and SGST each at 9%, as per Notification No.11/2017 (rate schedule). [Paras 5]The applicant's activity is a supply of services by transfer of the right to use goods and is classifiable under Sr. No. 10(ii), Heading 9966; taxable at 9% CGST and 9% SGST.Final Conclusion: The Advance Ruling holds that the contract is a supply of services by transfer of right to use the applicant's AC buses and is classifiable under Sl. No. 10(ii), Heading 9966 of Notification No.11/2017 - attracting CGST and SGST at 9% each. 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.