Commercial Vehicle given on hire for transportation of goods

[Kaustubh Karandikar]

XYZ (Manufacturer) have a commercial vehicle for transportation of goods and wants to provide the vehicle on hire to PQR(Manufacturer) for the transportation of Goods and for which there will be a monthly billing on the basis of number of trips and locations where the goods have been transported. Both are in the same state.

1) What will be Rate of GST to be charged on the Invoice by XYZ to PQR? And

2) The nature of Service (Whether this can be treated as GTA service or not?).

[KASTURI SETHI]

Dear Sir,

Query-wise reply is as under:-

1. HSN 996601. Hiring truck exempted vide Notification No.12/17-CT(Rate) dated 28.6.17 as amended vide Notification No. 2/18-CT(Rate) dated 25.1.18.

2. It cannot be treated as GTA.

[Kaustubh Karandikar]

Sir, will it not fall under any one of the following being given on hire?. More appropriately under Sr. No. 10(iii)

ª As per Sr. No. 9(vii), of Notification No. 8/2017-Integrated Tax (Rate) dt. 28.06.2017, Goods transport services other than (i), (ii), (iii), (iv), (v) and (vi) will attract 18% GST under Heading 9965.

ª As per Sr. No. 10(iii) of Notification No. 8/2017-Integrated Tax (Rate) dt. 28.06.2017, Rental services of transport vehicles with or without operators, will attract 18% GST under Heading 9966.

[KASTURI SETHI]

Sir, Let me re-examine in the light of your views. Revert soon.

[KASTURI SETHI]

Dear Sir,

In your query you have used the word,"HIRING" Commercial Vehicle. So relevant Notification No. is 12/17-CT(Rate) dated 20.6.17 (Serial No.22) and Notification No.9/17-IT(R) dated 20.6.17 (Serial No.23).

Notification No.12/17-CT(Rate) dated 20.6.17

22	Heading 9966 or Heading 9973	Services by way of giving on hire - (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or	Nil	Nil
		(b) to a goods transport agency, a means of transportation of goods.

Notification No.9/17-IT(R) dated 20.6.17

23

Heading 9966 or Heading 9973

Services by way of giving on hire - (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or (b) to a goods transport agency, a means of transportation of goods.

Nil

Nil

Notification No.8/17-IT(Rate) dated 20.6.17 (Serial No.10) does not contain the word,"Hiring". So it is not relevant. You are talking of hiring and not renting.

[MSM ASSOCIATES]

Mr. Kasturi Shethi, w.r.t above query i have a further doubt :-

Since the term "Hire" is not defined under GST act, what shall be the meaning of "Hire basis"?

Case 1) ABC Ltd gives on hire to XYZ Ltd, 10 trucks on a fixed hire Charges of ₹ 50000 per truck per month for the whole financial year.

V/S

Case 2) ABC Ltd gives on hire to XYZ Ltd, 10 trucks based on "per trip/km" basis for the whole financial year. Eg: The trips can be multiple trips per truck per day or single trip of more than 1 day per truck.

In my opinion in common parlance Case (1) will be considered as "on Hire basis".

But whether Case (2) can be considered as "On Hire basis" ? , because if that is the case than in my opinion majority/all the transactions will fall under "Hire basis" category, and no gst will be charged on transportation of goods.!!

Further, whether consignment note will be issued for "on Hire basis" ?

Thanking you in advance, waiting for your response.

[KASTURI SETHI]

Dear Sir,

W.r.t. your query dated 6.1.20 at serial no 5 above, the way you have drafted your query it appears to me that you are well conversant with GST. You know who is GTA. What is consignment note ? What is Renting of Motor Vehicle ? Even then I am expressing views as under :

1. Difference between 'Hiring' and 'Renting.

As per the Law Lexicon, the Encyclopaedic Law Dictionary, when A person gives motor vehicle to B person, A is providing renting service of motor vehicle (may be car, truck, van, metadoor, tipper etc.) and B is hiring that motor vehicle from A. .

2. Exemption on 'hiring basis' of vehicle meant for transportation of goods is available to GTA only,. if truck is supplied to GTA only. It is clearly mentioned at serial no. 22 of Notification no. 12/17-CT(R) dated 28.6.17 as amended. (extract of notification already given above. If truck is supplied to the person other than GTA, no exemption is available. In that situation, the activity of hiring and renting both are covered under the category of 'Renting of Motor Vehicle' e.g. we hire cab (Uber Co.) and Uber Co. provides renting service.

3. In the cases No.1 and 2 mentioned by you, if XYZ Ltd. is registered under the category of GTA , XYZ will pay tax. If XYZ is not registered as GTA no exemption is available to ABC Ltd. in both cases. Emphasis is supplied on hiring to GTA.

4. The issuance of consignment note is condition/qualification as GTA not for hiring basis.It is mandatory for GTA.

If hiring is not to GTA, explore the renting under RCM for payment of tax under RCM or FCM.

[Alkesh Jani]

Sir,

in this regards, renting and hiring, just trying to simplify the things is when any property is given on rent the effective control is also given (i.e. temporary transfer of right), while in case of hiring effective control is with the owner of the property. example can be if truck is given on hire basis, the effective control is with owner i.e. driver of the truck will work as per the instruction given by the owner, while in case of renting truck is given to a person and now the driver will work as per the instruction of the person who has rented the truck, here we can say that effective control is the person who has rented the truck.

This are my views,

Thanks

[KASTURI SETHI]

Yes. This is also an other aspect opined by Sh.Alkesh Jani Ji.

[KASTURI SETHI]

The category of "Right to use of tangible goods services" does not include trucks (means of transportation of goods by road). It includes machinery, equipments, excavators, cranes, wheel loaders etc..See HSN 9973

[Alkesh Jani]

Dear Shri Kasturiji Sir,

I was trying to simplify the term "Hiring" and "Renting", where effective control or right to enjoy without transferring the title.

Further, In GST "Goods" has been defined at Section 2(52) of CGST Act,2017 and is reproduced below for ready reference

"(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;"

Service is defined at Section 2(102) of the Act, which is as follows

"(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;"

Moreover, if we pursue the explanatory note of Services, nowhere the motor vehicle is barred under HSN 9973.

Now, the motor vehicle is goods and as it is not supply of goods, unless transfer of title of goods is made, therefore, it is supply of service i.e. (i) Hiring of goods and (ii) Renting of goods.

Based on above, I am of the view that effective control is also one the factor to determine the Hiring and Renting services.

Thanks

With due Regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

HSN 9973 talks of leasing or renting of machinery, equipments etc. only. It does not talk of hiring of motor vehicles.

What I want to say is that hiring of truck by GTA from an other person is exempted. Govt.does not want to burden GTA because GTA will pay tax. Hiring charges (without GST) will also form part of transportation charges/cost which will be recovered from the person who bears the freight (may be consignor or consignee). It is like the inclusion of cost of captively consumed goods in the manufacture of final product. (just for comparison) If truck is given to a person other than GTA, it will be considered under the category of "Renting of Motor Vehicles" and tax will be charged accordingly.

Now if we classify truck (means of transportation of goods) under the category of "Right to Use of Tangible Goods Services" without transfer of possession and effective control as opined by you, even then exemption will not be available. Motor Vehicle was not included in this category even during Service Tax regime.

We cannot intermingle the activity of hiring/renting with the concept of "Right to use of Tangible Goods Service" i.e. without giving legal right of possession and effective control. Both being classified separately in the Service Tax era and in the GST regime.

We are going beyond the query. Let the querist intervene, if he has any doubt. In both the scenarios exemption is not available, if hired to non-GTA.

[KASTURI SETHI]

In continuation of above, undoubtedly motor vehicle (means of transportation of goods) is a goods but not machinery or equipment. Examples of other machines are bulldozer, crane, forklift etc. Renting of these fall under the category of :"Right to use of tangible goods services" now under HSN 9973.

AI Summary

Hiring of commercial vehicle: exemption applies only when hired to a goods transport agency; otherwise treated as taxable renting service. Exemption for giving a commercial truck on hire applies only when the vehicle is given on hire to a goods transport agency or a state transport undertaking; hiring to any other person is not exempt and is treated as renting of motor vehicles subject to GST. The classification turns on recipient status and practical control (hiring vs renting), and issuance of a consignment note is mandatory only for GTAs.