Self-drive car rentals held leasing service under Heading 9973, Entry 17(viia); Article 366(29A)(d) not attracted

AAR held that the applicant's service of providing self-drive passenger vehicles without driver is classifiable under Heading 9973 as leasing or rental services without operator, specifically under Service Code 997329 (leasing or rental services concerning other goods, n.e.c.), and not under 997311. Entry 17(iii) of Notification No. 11/2017-CT (Rate) is inapplicable as there is no transfer of the right to use goods with exclusive possession and control under Article 366(29A)(d). The service is covered by Entry 17(viia), not the residual 17(viii). GST rate is that applicable to the supply of like goods.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the service of providing self-drive passenger vehicles (without driver) on rent is classifiable under Chapter 99, Heading 9973 and Service Code 997311, or under some other Service Accounting Code after the amendments made by Notification No. 20/2019-Central Tax (Rate).

(2) Whether the activity constitutes a "transfer of the right to use goods" attracting Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate), or is a different form of leasing/renting of goods.

(3) Whether, for services classifiable under Heading 9973, the applicable rate entry is Serial No. 17(viia) or Serial No. 17(viii) of Notification No. 11/2017-Central Tax (Rate), as amended; and consequently whether the applicable GST rate is 18% or the same rate as on supply of like goods.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Correct classification of the self-drive vehicle rental service

(a) Legal framework

The Court examined the Scheme of Classification of Services and the effect of amendments brought in by Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019.

Originally, Heading 9966 covered "Rental services of transport vehicles, with or without operator." Post-Notification No. 20/2019, effective 01.10.2019, Heading 9966 was confined to "rental services of transport vehicles with operator." Concurrently, Heading 9973 was amended to read "Leasing or rental services without operator," making it the designated heading for services where no operator is provided.

Within Heading 9973, the Scheme distinguishes: (1) Group 99731 - leasing or rental services concerning machinery and equipment (including certain transport equipment such as containers). (2) Group 99732 - leasing or rental services concerning other goods, with residual Service Code 997329 for "other goods, n.e.c."

(b) Precedent treatment

The Tribunal relied on earlier advance rulings to clarify the post-amendment classification scheme:

(i) It referred to a ruling that, post-Notification No. 20/2019, self-drive rentals without operator were held to fall under Heading 9973 rather than 9966.

(ii) It noticed that another ruling by an Appellate Authority similarly confirmed that rentals without operator are classifiable under SAC 9973, while rentals with operator remain under Heading 9966.

These were followed in substance as supporting authorities for the interpretative shift after 01.10.2019.

(c) Interpretation and reasoning

The Tribunal applied the maxim expressio unius est exclusio alterius to the amendment adding the words "with operator" to Heading 9966. By explicitly including "with operator," the legislature impliedly excluded rentals "without operator" from Heading 9966.

On the facts, the service consists of providing self-drive passenger cars on rent, without any driver, on daily/weekly/monthly basis, for personal (non-commercial) use. No operator is provided; customers arrange their own fuel and must return the vehicle with equivalent fuel level. GPS tracking and remote control features ensure continuous oversight by the owner.

From 01.10.2019, such services therefore cannot fall under Heading 9966, which is confined to rentals with operator. They necessarily fall under Heading 9973 ("leasing or rental services without operator").

Within Heading 9973, the Tribunal held that:

* Group 99731, including SAC 997311, concerns machinery and equipment, including certain transport equipment like containers. Passenger cars used by end-users for self-drive do not appropriately fall within "machinery and equipment" in this context.

* Passenger cars are better characterised as "other goods" and hence fall in Group 99732.

* Within Group 99732, no dedicated service code exists specifically for self-drive passenger cars, and therefore the residual Service Code 997329 ("Leasing or rental services concerning other goods, n.e.c.") is the closest and most specific fit.

The Tribunal rejected classification under SAC 997311 on the ground that it is framed for leasing/renting of transport equipment within the broader category of machinery and equipment, which does not accurately describe consumer self-drive car rentals.

(d) Ratio vs. obiter

The determination that, after 01.10.2019, self-drive vehicle rentals without operator fall under Heading 9973 and within it under SAC 997329 is part of the ratio decidendi, as it directly answers Question 1 and forms the necessary basis for resolving the rate issue (Issue (3)).

References to historical billing under SAC 996601 and the broader interpretative discussion on Heading 9966 before 2019 are largely contextual and explanatory, verging on obiter, as the ruling is confined to the post-amendment period.

(e) Conclusion on Issue (1)

The Tribunal concluded that the applicant's services of providing self-drive passenger cars on rent, without operator, are classifiable under Chapter 99, Heading 9973, Service Code 997329 ("Leasing or rental services concerning other goods, n.e.c."), and not under SAC 997311 or under Heading 9966.

Issue (2): Whether the transaction is a "transfer of the right to use goods" under Serial No. 17(iii)

(a) Legal framework

Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate) covers "transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration," which is treated as a deemed sale under Article 366(29A)(d) of the Constitution.

Schedule II, para 5(f) of the CGST Act treats "transfer of the right to use any goods for any purpose for consideration without transfer of title" as a supply of service.

(b) Precedent treatment

The Tribunal applied the test laid down by the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India (BSNL), where five cumulative conditions were laid down for a transaction to qualify as a "transfer of the right to use goods," the crucial condition being the conferment of exclusive possession and effective control of the goods upon the transferee for the period of hire.

It also referred to advance rulings where the BSNL test was applied to self-drive vehicles and cycles, holding that such arrangements did not pass the threshold for transfer of right to use goods because the owner retained effective control.

(c) Interpretation and reasoning

On the facts, the hirer receives a vehicle for self-drive use, but:

* The owner tracks the vehicle in real time via GPS (location, speed, fuel, tyre pressure, driver behaviour).

* The owner imposes strict contractual restrictions on the area and manner of use.

* The system can detect unauthorised use or tampering and can remotely immobilise the vehicle.

* The owner retains responsibility vis-à-vis statutory compliances (motor vehicle laws, insurance, third-party damages), subject only to possible reimbursement by the customer.

The Tribunal held that, given this continuous control and unilateral ability to intervene, reclaim, or restrict use, the hirer does not obtain the "exclusive possession and effective control" required under the BSNL test.

The hirer's use is permissive and regulated, rather than an unfettered legal right of possession.

Accordingly, the arrangement does not amount to a "transfer of the right to use goods" under Article 366(29A)(d) and does not fall under Serial No. 17(iii) of Notification No. 11/2017.

(d) Ratio vs. obiter

The finding that the transaction is not a transfer of the right to use goods and hence does not fall under Serial No. 17(iii) is part of the ratio decidendi because it narrows the applicable rate entries and is a necessary step in choosing between Serial No. 17(viia) and 17(viii) (see Issue (3)).

Detailed references to comparable factual matrices in other rulings are illustrative, but do not independently constitute binding reasoning.

(e) Conclusion on Issue (2)

The Tribunal held that the self-drive vehicle rental arrangement does not satisfy the BSNL conditions for "transfer of the right to use goods"; therefore, Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate) is inapplicable to the applicant's services.

Issue (3): Applicable rate entry - Serial No. 17(viia) versus 17(viii)

(a) Legal framework

The Tribunal traced the evolution of Serial No. 17 of Notification No. 11/2017-Central Tax (Rate) and its amendments, identifying three relevant entries concerning leasing/renting of goods without operator under Heading 9973:

(i) Serial No. 17(iii) - "Transfer of the right to use any goods..." (TOTRU) - already held inapplicable (Issue (2)).

(ii) Serial No. 17(viia) - "Leasing or renting of goods" - inserted w.e.f. 01.01.2019 by Notification No. 27/2018-Central Tax (Rate), covering leasing/renting of goods that do not qualify as deemed sales under 17(iii). It prescribes the same GST rate as applicable to the supply of like goods.

(iii) Serial No. 17(viii) - "Leasing or rental services, without operator, other than (i) to (vii) and (viia) above" - a residual entry. After amendments, it carries a flat rate of 9% CGST + 9% SGST (18%) and is expressly residual, excluding cases covered by 17(viia).

(b) Precedent treatment

The Tribunal noted divergence in earlier authorities:

* One ruling (same State AAR) had classified self-drive rentals under Serial No. 17(viii), applying the flat 18% rate, treating it as the residual "leasing or rental services without operator" entry.

* Another ruling by an Appellate Authority had instead classified renting of e-bikes and bicycles without operator under Serial No. 17(viia), holding that the applicable rate is the same as that for supply of like goods.

The Tribunal recognised these as divergent approaches and undertook its own interpretative analysis of 17(viia) and 17(viii).

(c) Interpretation and reasoning

Having excluded Serial No. 17(iii) (Issue (2)), the Tribunal considered whether the applicant's service was better covered by Serial No. 17(viia) or Serial No. 17(viii).

It reasoned as follows:

* Factually, the transaction is "leasing or renting of tangible goods (motor vehicles) without transfer of title," with no operator provided.

* Legally, under Section 2(102) of the CGST Act, such leasing/renting is a "service," and Schedule II, para 5(f) expressly deems "transfer of the right to use any goods for any purpose for consideration without transfer of title" as a supply of service. The present case fits within the broader concept of service-based leasing/renting of goods, albeit without constituting a deemed sale under Article 366(29A)(d).

* Serial No. 17(viia) was introduced specifically to cover "Leasing or renting of goods" that are not covered by the deemed sale category in 17(iii). It prescribes a rate linked to the rate on supply of like goods, indicating legislative intent to match service-rate with goods-rate for such non-deemed-sale leasing/renting.

* Serial No. 17(viii) is expressly drafted as a residual entry, to apply only when the services cannot be brought within sub-entries (i) to (vii) and (viia). By its own language, it excludes services already falling under 17(viia).

Applying the principle generalia specialibus non derogant (the specific provision prevails over the general), the Tribunal held that if a service falls within the scope of 17(viia), it cannot be pushed into the residual 17(viii), which is meant as a last resort for unclassified leasing/rental services without operator.

The Tribunal found that the applicant's service is "squarely covered" by the specific language of 17(viia) - being a leasing/renting of goods (passenger motor vehicles), without transfer of title, and not amounting to transfer of right to use in the BSNL sense. Hence 17(viia), and not 17(viii), applies.

(d) Ratio vs. obiter

The holding that Serial No. 17(viia) applies, and that Serial No. 17(viii) does not, is part of the ratio decidendi, as it directly disposes of the applicant's second question on rate. The comparative discussion of differing AAR/AAAR views is supportive and contextual, not essential to the outcome.

(e) Conclusion on Issue (3)

The Tribunal concluded that:

* The applicant's services, classifiable under Heading 9973 (SAC 997329), fall under Serial No. 17(viia) of Notification No. 11/2017-Central Tax (Rate), as amended.

* Serial No. 17(viii) is inapplicable, being a residual entry that is excluded where 17(viia) is attracted.

* The applicable GST rate is therefore the same as the rate on the supply of like goods (i.e., the corresponding goods-rate for the particular category of motor vehicles supplied on rent), and not a flat 18% under Serial No. 17(viii).

Cross-reference summary

* The classification finding (Issue (1), SAC 997329) is foundational to the rate analysis in Issue (3).

* The rejection of "transfer of right to use goods" under BSNL (Issue (2)) directly excludes Serial No. 17(iii) and channels the analysis towards competing entries 17(viia) and 17(viii) (Issue (3)).

* The preference for Serial No. 17(viia) over 17(viii) relies on both the specific-vs-residual interpretative rule and the legislative history linking rentals without operator to Heading 9973 after 01.10.2019.

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