TaxTMI 
TaxTMI 
2022 (4) TMI 1139
X X X X Extracts X X X X
X X X X Extracts X X X X
....king Financial Company having its registered and head office at Chennai and among its other finance services, is also involved in the business of leasing. The Leasing business involves leasing of machineries, commercial vehicles, and non- commercial vehicles. The Applicant has separate GST registrations for its leasing business in eleven States. They have sought Advance Ruling on the following question:- 1. Whether the portion of the certain additional services viz., payment of road tax/registration fees, insurance premium, etc., rendered by the applicant in the course of its Leasing of the vehicle/s to the Lessee falls under the category of "services of a pure agent"? Or 2. Whether the recovery of Motor Vehicle Registration fee, Motor Vehicle life Tax & RTO charges etc., by the applicant from the lessee for the registration of the vehicle in the name of the lessee forms part of the value of supply or the applicant is acting as a pure agent for this purpose and so the above charges do not form part of the taxable supply ? The Applicant has submitted the copy of application in Form GST ARA - 01 and also submitted a copy of Challan evidencing payment of application fees of Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w, the GST rate applied on the lease rentals is that of the rate that is applicable on the supply of Goods which forms part of the lease, and the GST is accordingly being remitted by them. 2.2 On their interpretation of Law, it is stated that for the purpose of CGST Act, 2017 and TNGST Act, 2017 and the transactions for which advance ruling is sought, the parties are described hereunder: i. Vehicle dealer - Third Party/Supplying Dealer ii. Applicant/Lessor facility - Lessor/Supplier of Leasing iii. Customer/Lessee facility - Lessee/Recipient of Leasing The Vehicle dealer (third party) raises a Tax invoice for the vehicle on the applicant (Lessor/supplier of leasing facility) which includes the unit price for the vehicle after discount, if any, CGST @14%, SGST @14% plus compensation cess as may be applicable. A separate debit note is also raised by the Vehicle dealer (Third Party) on the applicant (Lessor/supplier of leasing facility) for the registration & Motor vehicle life tax & RTO charges, accessories, fastag, TCS etc. As of now, they calculate the monthly lease rentals based on the aggregate amounts released by them to the Vehicle Dealer as per terms and conditio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Authority is not convinced that these additional payments don't fall within the ambit of "Pure agent", whether such payments can be treated as separate services by allowing the applicant to apply GST at the rate applicable to general services, viz. @18% instead of applying the higher rate applicable to the goods forming part of the lease 3.1 Due to the prevailing PANDEMIC situation and in order not to delay the proceedings, the applicant was addressed through the Email Address mentioned in the application to seek their willingness to participate in a virtual Personal Hearing in Digital media. The applicant vide their e-mail dated 13.12.2021 communicated that they preferred to be heard physically and not virtually. The hearing was held on 28.12.2021. The Authorised representatives Shri. R. Sridharan, Sr. Gen. Manager & Head-Indirect Taxation and Shri. U. Somanathan, Assistant Gen. Manager -Taxation attended the hearing and reiterated their submissions. They submitted additional submissions in writing. They submitted that they are a Non - banking financial company extending finance facilities for the purchase of vehicles by way of hypothecation and leasing; that a Master....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at whose request the vehicle has been purchased by the applicant/Lessor for the purpose of providing it on lease. These supplies are in addition to the supply of vehicle by the Lessor to the Lessee and are statutory requirements for plying the vehicle on road. Hence to be excluded and treated as supplies made as a "Pure Agent". (II) Does the registration & Motor Vehicle life tax & RTO charges Insurance premium etc., paid by the applicant and thereafter reimbursed by the lessee shall be excluded from the value of supply transaction (leasing) done by the applicant.- (a) These additional payments are statutory requirements, receipted and issued in the name of the Lessee/recipient, including the GST portion, if any, applicable in any of these payments. (b) Since the above said charges are intended to be passed on to the lessee (recipient) by the applicant (lessor/supplier) as such, these expenditure or costs incurred by the Applicant (Lessor/ supplier) on behalf of the Lessee are to be treated as "services" that are made by the Applicant/Lessor as a "pure agent" and therefore excluded from the value of the taxable supply, which is the vehicle, (c) If the applicant is allowed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce No. GST/HTN/00688 dated 29.05.2018 o Copy of Debit Note No. DN/ANR/0743 dated 31.05.2018 o Copy of Lease Monthly Rental Invoice raised to the Lessee-Sample Inv No. L133212204000013 dated 01.04.2021 o Sale of Leased Vehicle after agreement closure-Sale Invoice No. LS33212205000004 dated 29.05.2021 * Flow Chart of EMI working and supporting documents for lease contract No. BB2015CR,- o Copy of the Supplementary Lease Agreement o Copy of Purchase Invoice No. GH201800307 dated 29.07.2018 o Copy of Lease Monthly Rental Invoice raised to the Lessee-Sample Inv No. L133212204000013 dated 01.04.2021 o Sale of Leased Vehicle after agreement closure-Sale Invoice No. LS33212207000011 dated 27.07.2021 * Flow Chart of EMI working and supporting documents for lease contract No. BC2002BN,- o Copy of the Supplementary Lease Agreement o Copy of Purchase Invoice No. H201701385 dated 27.09.2017 o Copy of Debit Note No. DBNH201701385 dated 27.09.2017 o Copy of Lease Monthly Rental Invoice raised to the Lessee-Sample Inv No. L133212204000042 dated 01.04.2021 o Sale of Leased Vehicle after agreement closure-Sale Invoice No. LS33212209000005 dated 25.09.2021 * Flow Chart o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g etc., which are also released to the supplying dealer by the applicant at the request of the Lessee. * The Lease rentals are accordingly calculated, and rental repayment schedule is drawn up, which forms part of the Lease Agreement. Thus, in a lease, the applicant being the owner of the leased asset, retains the ownership and transfers the right of usage of the asset alone to the Lessee. At the end of the lease period or early foreclosure, the vehicle will be sold by the applicant to a third party other than the Lessee. Generally, the executives who were using the car till then offers to buy the assets as a third party. The applicant considers effecting sale to such executives, being not its lessee. This is also in strict compliance with the legal, taxation and accounting requirement of a lease. During such end sale also, the applicant charges GST rate as applicable to new vehicles and remits the same to the government. * Though leasing is termed as a "Service" as per the GST laws, in terms of Central Tax (Rate) Notification No. 11/2017 and Compensation Cess (Rate) Notification No.2/2017 both dt.28.06.2017, the GST rate/cess to be applied on the lease rentals is that of the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the lessor Tvl. Sundaram Finance Limited, may not be treated as "pure Agent" in respect of the said payment of registration fees of Motor Vehicles, Motor Vehicle Life Tax, RTO Charges and Insurance and not entitled for exemption from levy of tax under the provisions of GST Act 2017. 5.2 The Center Jurisdictional authority has not furnished any comments/remarks on the questions raised by the applicant. Hence, it is construed that there are no pending proceedings, on the questions raised by the applicant. 6.1 We have gone through the facts of the case, oral and written submissions made by the applicant as well as the Jurisdictional Officer and the applicable provision of the GST Laws in this regard. The applicant is a Non-Banking financial company having its registered head office at Chennai and among its other financial services, is also involved in the business of leasing. The leasing business involves leasing of machinery, commercial vehicles and non-commercial vehicles. The applicant has sought ruling on the following question:- Whether the portion of the certain additional services viz., payment of road tax/registration fees, insurance premium, etc., rendered by the appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tuals paid by them to the vehicle dealer (third party) to enable the vehicle to get registered for use by the lessee. The contention of the applicant is that since the Lessee is the actual user of the vehicle and at whose request the vehicle has been purchased by them for the purpose of providing it on lease, they should be treated as a "Pure Agent" in terms of Rule-33 of CGST Rules in respect of payments made by them towards such additional services viz., registration and motor vehicle life tax & RTO charges, insurance premium etc., and thereafter get it reimbursed from the Lessee (recipient) on actual basis. 7.2 From the submissions of the applicant, it is seen that they enter into a Master Agreement for 'operating lease' with their lessee outlining the terms and conditions for such operating lease to be extended by them to the lessee. It is also seen that the applicant enters into supplemental Operating Lease agreement when the Lessee approaches them to lease a desired vehicle wherein the terms and conditions of the Master Agreement are referred and agreed to be adopted. Thus, it is evident that the applicant extends the services of 'Operating Lease' to the Less....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Lessor retaking and resuming possession thereof for whatsoever reason at any time during the lease period or whenever required to do so. 7.3 From a conjoint reading of the above clauses of the agreement and the various submissions such as Tax Invoices, Debit Notes raised by the Vehicle Dealer on them and the Tax Invoice raised by the applicant on the lessee for the EMI, we find that,- * the activity of applicant is leasing vehicles under 'Operational Lease' to the lessee; * applicant is the owner of the vehicles leased to the lessee and the base price of the vehicle along with the On-road component charges is capitalized in the Books of Accounts of the applicant; * Vehicle dealer raises the Tax Invoice and the Debit note for the on-road components on the applicant; * EMI is calculated considering the entire value including the on-road components charged on them; * The applicant as agreed upon with the lessee, has permitted the lessee to register the vehicle in the name of the lessee with the endorsement of the ownership to be with lessor and on the undertaking of the lessee to transfer the registration in the name of the lessor, whenever required to do so [Cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consideration for any supply; and (e) Subsidies directly linked to the price excluding subsidies provided by the Central and State Governments. 8.2 As per Section 15 above, the value of a supply, where the supplier and the recipient are not related and the price is the sole consideration, is the transaction value, which is the price actually paid or payable for the said supply. In the case at hand, the applicant purchases the vehicle identified by the lessee from the dealer also identified by the lessee and supplies the vehicle as 'Operational lease'. The supply under consideration in the instant case, is the supply of the vehicle by the dealer to the applicant. The dealer and the applicant are not related persons and therefore the consideration charged by the dealer for the supply of the vehicle to the applicant is the Transaction Value' for the purposes of GST. From the submissions, it is seen that the Dealer raises a Tax Invoice' towards the basic price of the vehicle with the applicable GST levies and a 'Debit Note' towards the 'On-road Component' comprising of Registration charges, road tax, etc. The question before us is whether the 'On....
X X X X Extracts X X X X
X X X X Extracts X X X X
....visions of Motor Vehicles Act. Section 39 of The Motor Vehicles Act, 1988 provides as under:- 39. Necessity for registration.- No person shall drive any motor vehicle and no owner of a motor vehicle shall cause or permit the vehicle to be driven in any public place or in any other place unless the vehicle is registered in accordance with this Chapter and the certificate of registration of the vehicle has not been suspended or cancelled and the vehicle carries a registration mark displayed in the prescribed manner and Section 146 of the Motor Vehicles Act, 1988 provides as under: 146. Necessity for insurance against third party risk.- (1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter: In the case at hand, the vehicle is given on 'Operating lease', wherein the ownership of the vehicle is held by the applicant and through the terms and conditions for the leasing transactions, the applicant has permitted the les....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the same to the case at hand, the 'On-road components' are incidental charges incurred by the applicant in purchasing the vehicles for supply under the 'Operational lease' to the Lessee. Therefore, the value of 'On-road component' cannot be considered as additional charges or the applicant can't be held as acting as a Pure agent' in respect of supply of the 'On-road Component'. 8.6 A Verification of one of the Lease Agreement entered by the Applicant/ Lessor with their Lessee namely TV Sundaram Iyengar & Sons Pvt.Ltd., vide agreement No. YC5002HX dated 23-8-2017 reveals that the applicant is collecting monthly rent; Rs. 18875/- (Rupees eighteen thousand eight hundred and seventy five only) per month from the Lessee under Option-I, currently followed. This monthly installment covers the Lease rent of the car as well the recovery of registration fees, RTO charges, and Insurance Premium. We find that the payment of the registration fees, RTO, charges, and Insurance Premium, is mandatory to put the vehicle to-use on road and therefore amounts paid towards such registration fees etc., by the applicant is a part of consideration received in rel....