Leasing pre-owned motor vehicles taxable under GST Act section 7 at new vehicle rates not used vehicle concessional rates

AAR Haryana ruled that leasing of pre-owned motor vehicles constitutes taxable supply under GST Act section 7. The tax rate applies same as new vehicles based on engine capacity, size, and fuel type under Chapter 87, not the concessional rate for sale of used vehicles under Notification 8/2018. Monthly lease fees attract GST at rates specified in Serial No. 17(vi) of Notification 11/2017 and compensation cess per Notification 01/2017, treating leased vehicles equivalent to new vehicle supply rates rather than used vehicle sale rates.

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Issues Involved:
1. Eligibility of the applicant to seek an advance ruling.
2. GST rate and HSN applicable to the monthly lease fees for leasing pre-owned cars.
3. Applicability of compensation cess on the monthly lease fees for leasing pre-owned cars.

Issue-wise
Detailed Analysis:

1. Eligibility of the Applicant to Seek an Advance Ruling:
The applicant must satisfy the conditions prescribed under the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), Goods and Services Tax (Compensation to States) Act, 2017, and Haryana Goods and Services Tax Act, 2017 (HGST Act, 2017). Section 97(2) of the CGST Act, 2017 allows an advance ruling on questions like the applicability of a notification and determination of the liability to pay tax on goods or services. The proviso to Section 98(2) states that if the question raised is pending or decided in any proceedings under the Act, the application may be rejected. The applicant has confirmed that the issue is neither pending nor decided in any proceedings, making them eligible to seek an advance ruling.

2. GST Rate and HSN Applicable to the Monthly Lease Fees for Leasing Pre-owned Cars:
The applicant is engaged in leasing pre-owned cars and has sought clarity on the applicable GST rate and HSN code. The applicant contended that leasing of second-hand motor vehicles should be taxed under Serial no. 17(viia) of Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, read with Notification No. 08/2018-Central Tax (Rate) dated 25th January 2018. However, the Authority determined that the supply of leasing pre-owned motor vehicles falls under the scope of supply as defined in Section 7 of the CGST Act, 2017. The applicable tax rate is to be determined as per Serial no. 17(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, which states that the tax is to be charged at the same rate as applicable on the supply of like goods involving the transfer of title in goods. It was concluded that the tax rates of new vehicles are to be applicable based on the vehicle's specifications, such as engine capacity and mode of fuel.

3. Applicability of Compensation Cess on the Monthly Lease Fees for Leasing Pre-owned Cars:
The applicant also sought clarity on the applicability of compensation cess on the monthly lease fees. The Authority referred to Notification No. 01/2017-Compensation cess (Rate) dated 28th June 2017, which states that compensation cess is applicable at the same rate as on the supply of similar goods. The Authority found that the applicant's supply of leasing pre-owned vehicles is not covered under Notification No. 08/2018-Central Tax (Rate) dated 25th January 2018, which is related to the sale of old and used vehicles. Therefore, the compensation cess is applicable as per the specifications of the vehicles under Chapter 87.

Ruling:
1. GST Rate and HSN for Monthly Lease Fees:
- The applicable rate of tax on the supply made by the applicant is to be determined in accordance with Serial no. 17(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017 as amended.

2. Compensation Cess for Monthly Lease Fees:
- The applicable rate of tax is as per Notification No. 01/2017-Compensation cess (Rate) dated 28th June 2017.

Conclusion:
The Authority concluded that the supply of leasing pre-owned vehicles is a taxable event and the applicable tax rate is the same as for new vehicles based on their specifications. Compensation cess is also applicable as per the same notification. The applicant's eligibility to seek an advance ruling was confirmed based on their compliance with the CGST Act, 2017.

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