Tax implications of bus pass distribution by service provider clarified by Authority for Advance Rulings

The Authority for Advance Rulings determined that the value of bus passes distributed by the applicant to commuters and the facilitation charges must be included in the total value of services provided. Additionally, the AAR ruled that the service provided by the applicant cannot be classified as mere facilitation services between the public transportation agency and commuters, as the applicant receives services from the agency and supplies them to commuters directly, operating on a principal-to-principal basis.

---

---

Issues Involved:
1. Inclusion of the value of bus passes in facilitation charges under Section 15(2) of the CGST Act, 2017 and KGST Act, 2017.
2. Classification of the applicant's service as merely facilitation services between BMTC and commuters.

Detailed Analysis:

Issue 1: Inclusion of the Value of Bus Passes in Facilitation Charges

The applicant, M/s. Ascendas Services (India) Private Limited, sought an advance ruling on whether the value of bus passes distributed to commuters should be included in the value of facilitation charges as per Section 15(2) of the CGST Act, 2017 and KGST Act, 2017. The applicant argued that they merely facilitate transportation services by obtaining bus passes from BMTC and providing them to commuters, charging a separate facilitation fee of Rs. 300 plus 18% GST. The applicant contended that the value of the bus passes should not be included in the facilitation charges, as they only recover the actual cost incurred for the bus passes without any markup.

However, the Authority for Advance Rulings (AAR) examined the nature of the transaction and found that the applicant is in agreement with BMTC for the provision of transportation facilitation services. BMTC requires the applicant to collect a minimum of 50 bus passes, and for every 50 passes, BMTC allots a chartered bus to the applicant. The BMTC charges tax on the bus passes sold to the applicant wherever applicable. The AAR concluded that the service provided by BMTC to the applicant is covered under SAC 996413 - Non-Scheduled Local Bus and Coach Charter Services. The applicant receives these services and then provides transportation services to the commuters.

The AAR determined that the total amount charged to the service recipient by the applicant, including the value of the bus passes and facilitation charges, should be considered the value of services supplied as per Section 15 of the CGST Act, 2017. Thus, the value of the bus passes distributed by the applicant to the commuters and the facilitation charges must be included in the value of services provided by the applicant.

Issue 2: Classification of the Applicant's Service as Facilitation Services

The applicant also sought clarification on whether the supply of service in their hands could be classified merely as facilitation services between BMTC and the commuters. The applicant argued that they act as an intermediary, facilitating the transportation service provided by BMTC to the commuters and charging a facilitation fee for this service.

The AAR, however, found that the applicant is not merely facilitating the service but is actually receiving the services from BMTC and providing them to the commuters. The agreement between the applicant and BMTC indicated that the applicant is responsible for arranging transport for the staff of various corporate clients and is required to ensure the provision of alternate transportation services if BMTC fails to provide the service. The AAR noted that the commuters or the companies are not parties to the contract between the applicant and BMTC, and the applicant is issuing bills to the companies in the ITPB, not to individual commuters.

The AAR concluded that the applicant is not an intermediary as defined under Section 2(13) of the IGST Act, 2017, because the applicant is receiving services from BMTC and providing services to the commuters on a principal-to-principal basis. Therefore, the supply of service in the hands of the applicant cannot be classified merely as facilitation services between BMTC and the commuters.

Ruling:

1. The value of the bus passes distributed by the applicant to the commuters and the facilitation charges is to be included in the value of services provided by the applicant.
2. The supply of service in the hands of the applicant cannot be classified merely as facilitation services between BMTC and the commuters.

---