No ITC for Purchase of Motor Vehicle to a Rent a Cab Service Provider : AAR (West Bengal)

No ITC for Purchase of Motor Vehicle to a Rent a Cab Service Provider : AAR (West Bengal)

The West Bengal  Authority for Advance Ruling in the case of Mohana Ghosh {Trade Name : M/s Reesham Associates (Case Number : WBAAR 09 of 2019 dated 28/03/2019)} , ruled that the no input Tax credit is admissible  for the purchase of motor vehicle to Rent a Cab Service Provider. The key observations of the authority has been summarized as under :

1. The applicant is Rent a Cab service provider and provides cab rental service inter alia to institutions like West Bengal Postal Service. The recipient has to pay the applicant a certain amount per month as consideration irrespective of what distance the cab travels in a particular month. The additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays. To cover the cost of fuel, the distance travelled needs to be brought into play, but only if it crosses a certain threshold.

2. Section 17(5)(b)(iii) of the CGST Act did not allow input tax credit on supply of rent-a-cab service, except under certain specific conditions. Post-amendment, effective from 01/02/2019,the restriction continues under section 17(5)(b)(i) of the Act on renting and hiring of motor vehicles. The Applicant, however, is a supplier of rent-a-cab service and  Section 17(5) of the Act does not restrict the supplier of such services from claiming the input tax credit on her inward supplies except as provided under section 17(5)(a) of the Act.

3. The applicant argues that she is providing transportation of passenger service and thus claimed for the admissibility of the ITC on the ground of the exception as mentioned in  17(5) (a) (B) of the CGST Act regarding the “transportation of passengers”

4. Rent-a-cab is not defined in the GST Act. Nature of the Applicant’s service is, therefore, derived from what is stated in the application and what can be ascertained from the invoices.

5. Passenger transportation service is classified under SAC 9964. However Renting of any motor vehicle is classified under SAC 9966. The major difference between the two service is the degree of the control over the vehicle hired .

In the case of the transportation of passenger,  the passenger may have varying degree of control over the vehicle. The passenger is generally travelling from one place to another and enjoys the certain degree of the independence in choosing the travel time, destination etc. He pays the consideration for the distance travelled depending upon the nature of the contract.

But in case of the rent a cab service (motor vehicle) the recipient of the service is not the mere passenger instead he is enjoying the service of having provided a motor vehicle, with or without a driver, for use in whatever way he likes for the duration of the renting period. lt may remain parked for the entire duration of renting without actual transportation of any person. The recipient is provided with the right to use the vehicle over a specified duration, whether he is a passenger or not.

4. The photocopies of the applicant’s invoices shows that the recipients are institutions like West Bengal Postal Circle, who clearly could not travel as a passenger. Therefore the claim of the applicant can not be entertained.

Based on the above facts authority ruled as under :

“GST paid on the [inward supply] of motor vehicles for supplying rent-a-cab service is not admissible for credit in terms of section 17(5)(a) of the GST Act.

This Ruling is valid subject to the provisions under Section 104(1),of the GST Act.”

 This article is an endeavor to share some learning obtained. The views expressed are of the author and are intended solely for informational purpose only. Though due care is taken while preparing the document, possibility of errors cannot be ruled out. Expert guidance, where required and  reference to the original act, notification, circular, rules etc is highly recommended.

(About the author – The author is a member of ICAI and can be reached at Email: nikhilkumarca@gmail.com )  

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