Electronic commerce operators denied GST exemption for passenger transportation services while direct bookings remain exempt

Delhi HC upheld GST Notification No. 16/2017 denying exemption to electronic commerce operators (ECOs) for passenger transportation services while maintaining exemption for direct bookings. Court held ECOs constitute a distinct statutory class under GST Act sections 9(5) and 52, separate from individual service providers. Classification between ECOs and individual suppliers has rational nexus with GST objectives and is not discriminatory based on booking mode. ECOs cannot claim exemption as vested right since they provide bundled services beyond mere transportation. Challenge to constitutional validity under Articles 14, 19(1)(g) and 21 rejected. Application disposed.

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Issues Involved:
1. Whether the impugned Notifications arbitrarily create a classification between the Electronic Commerce Operators (ECOs) and individual service providers solely based on the 'mode of booking' availed by the consumer for availing the said service.
2. Whether the impugned Notifications violate Articles 14, 19(1)(g), and 21 of the Constitution.
3. Whether the impugned Notifications are ultra vires to the Central Goods and Services Tax Act, 2017 (the Act of 2017).

Summary:

Issue 1: Classification Based on Mode of Booking
The court held that the impugned Notifications do not create an unreasonable classification based on the 'mode of booking' availed by consumers. The provisions of the Act of 2017 recognize ECOs as a distinct and separate class from individual service providers. Sections 9(5) and 52 of the Act of 2017 create a statutory distinction, making ECOs liable to pay tax for services provided through their platforms, even when individual suppliers are otherwise exempt. The ECOs provide additional value-added services such as security, digital payments, and convenience, which justify the differentiation.

Issue 2: Violation of Constitutional Articles
The court found that the impugned Notifications are not violative of Articles 14, 19(1)(g), and 21 of the Constitution. The classification of ECOs as a distinct category has a rational nexus with the object of the GST law, which aims to tax every transaction of supply of goods and services. The exemption continues to apply to individual service providers who do not have the means to comply with the GST provisions, thereby ensuring a level playing field.

Issue 3: Ultra Vires to the Act of 2017
The court held that the impugned Notifications are not ultra vires to Sections 9(5) and 11 of the Act of 2017. The Respondents are empowered to issue such notifications to withdraw exemptions conditionally. The ECOs cannot claim a vested right to exemptions, and the Respondents are within their legislative purview to withdraw the same.

Conclusion:
The court concluded that the impugned Notifications are valid and do not violate constitutional provisions or the Act of 2017. The petitions were dismissed, and the pending applications were disposed of.

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