Interpretation of ‘transfer of right to use’ vis ‘hiring’ of vehicles – AAR, West Bengal
by ReinHeads Team | Jan 27, 2020
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Interpretation of ‘transfer of right to use’ vis ‘hiring’ of vehicles – AAR, West Bengal
- Ishan Resins & Paints Ltd. (‘the Applicant’) intends to lease trucks without operator to Goods Transport Agencies (‘GTA’) or other persons. The lessee will enjoy the possession of the vehicle and provides the operator, bears the fuel cost, maintenance, insurance, etc.
- Rental service of transport vehicles with/ without operator is taxable under S. No. 10 of Notification No. 11/ 2017 – CT(Rate) (‘the Rate Notification’)
- S. No. 22(b) of Notification No. 12/ 2017 – CT(Rate) (‘the Exemption Notification’) exempts service by way of giving on hire a means of transportation of goods to a GTA
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| Issues before the Authority for Advance Ruling (‘AAR’) |
| 1. Whether supply of services by way of leasing goods transport vehicles without operators to GTA would be exempt under the Exemption Notification?
2. If the above is answered in negative, what is the appropriate classification and rate of tax?
3. Whether the Applicant is eligible to claim ITC in respect of purchase of motor vehicles?
| Contentions of the Applicant |
- The Applicant will lease out the vehicle entailing transfer of right to use, where the control and possession is transferred to the lessee
- Accordingly, the exemption would not be available since the transaction is different from giving the vehicle on hire.
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| Discussion & Ruling |
- As per Black’s Law Dictionary, ‘hiring’ is a kind of bailment and includes agreements where the control and possession of goods is transferred to the hirer. Accordingly, the Exemption Notification would apply to all hiring provided the hirer is a GTA and there is no other specific provision for taxing transfer of right to use such goods
- However, S. No. 17(iii) of the Rate Notification specifically provides for taxability in respect of service of transferring the right to use any goods for any purpose (whether or not for a specified period). The said provision restricts the meaning of the term ‘hire’ used in S. No. 22 of the Exemption Notification only to those transactions that do not involve transfer of right to use the goods
- In the Applicant’s case, the control and possession of the vehicle will be transferred to the lessee and the service is classifiable under SAC 997311 as leasing or rental services concerning transport equipment without operator. This tantamounts to transfer of right to use goods and is taxable under S. No. 17(iii) of the Rate Notification
- Under Section 17(5)(a) of the Central Goods and Service Tax Act, 2017, the restriction on ITC does not apply to goods transport vehicles and S. No. 17(iii) of the Rate Notification does not restrict availment of ITC on the goods subsequently given on lease. Therefore the Applicant can avail ITC on the vehicles.
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