Bus rental services to state transport corporation exempt from GST under Entry 22 exemption

The AAR-Kerala held that services of providing passenger buses on rent/lease to Kerala State Road Transport Corporation (KSRTC) are exempt from GST. The applicant provided buses with trained drivers under an agreement where KSRTC bore fuel costs while the applicant received rental charges on kilometer basis plus additional consideration from advertisements and cargo transportation. The Authority determined that KSRTC qualifies as a state transport undertaking under relevant provisions. Following CBIC Circular No. 164/20/2021-GST clarifying that "giving on hire" includes renting of vehicles, the transaction qualified for exemption under Entry 22 of Notification No. 12/2017-Central Tax (Rate) for rental services of motor vehicles carrying more than twelve passengers to state transport undertakings.

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Issues Involved:
1. Applicability of GST rate for providing passenger buses on rent/lease.
2. Exemption from GST for providing passenger buses on rent/lease.
3. Nature of services and applicable tax rate if the above issues are resolved negatively.

Summary:

Issue 1: Applicability of GST rate for providing passenger buses on rent/lease
The applicant sought to determine whether the service of providing passenger buses on rent/lease to Kerala State Road Transport Corporation (KSRTC) is chargeable to GST at 18% under Tariff Heading 9966, 'Rental Services of Transport Vehicles,' as per Entry No. 10(iii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017. The applicant contended that the transaction is in the nature of renting, not hiring, and thus should be taxed at 18%.

Issue 2: Exemption from GST for providing passenger buses on rent/lease
The applicant also queried whether the service of providing passenger buses on rent/lease to KSRTC is exempt from GST under Tariff Heading 9966, 'Services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers,' as per Notification No. 12/2017-CT(R) dated 28.06.2017. The applicant argued that KSRTC, being a state transport undertaking, should qualify for this exemption.

Issue 3: Nature of services and applicable tax rate if the above issues are resolved negatively
This issue was considered only if the answers to the first two questions were negative, which was not the case here.

Contentions and Arguments:
The applicant provided detailed contentions, including the nature of the agreement with KSRTC, the responsibilities of both parties, and relevant clauses from the agreement that support their view. They argued that the transaction should be considered renting rather than hiring, citing various legal precedents and judgments. The applicant also highlighted that KSRTC has effective control over the buses, further supporting their stance.

Discussion and Conclusion:
The Authority for Advance Ruling examined the agreement and the nature of the transaction. They referred to the relevant notifications and a clarification issued by CBIC in Circular No. 164/20/2021-GST dated 06.10.2021, which stated that "giving on hire" includes renting of vehicles. Consequently, the transaction of renting vehicles to a State Transport Undertaking is eligible for the exemption under SI. No. 22 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Ruling:
1. The service of providing passenger buses on rent/lease to KSRTC is not chargeable to GST at 18% under Tariff Heading 9966 as per Entry No. 10(iii) of Notification No. 11/2017-CT (Rate) dated 28.06.2017.
2. The service of providing passenger buses on rent/lease to KSRTC is exempt from GST under Tariff Heading 9966 as per SI. No. 22 of Notification No. 12/2017-CT(R) dated 28.06.2017.
3. The third question is not relevant in view of the answer to the second question.

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