MAHARASHTRA AUTHORITY FOR ADVANCE RULING

GST Bhavan, Room No. 107, 1st floor, B-Wing, old building Mazgaon, Mumbai - 400010.

(Constituted under Section 96 of the Maharashtra Goods and Services Tax Act, 2017)

BEFORE THE BENCH OF

(1) Ms. P. Vinitha Sekhar, Additional Commissioner of Central Tax, (Member)

(2) Shri T.R. Ramnani, Joint Commissioner of State Tax, (Member)

PROCEEDINGS

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as "the CGST Act and MGST Act" respectively ] by M/s. M P ENTERPRISES & ASSOCIATES LIMITED, the applicant, seeking an advance ruling in respect of the following questions.-

1. Whether the service of operating mini AC buses by the applicant for B.E.S. T (Brihan Mumbai Electricity Supply Transport Undertaking) would be exempt from payment of GST under Tariff Heading 9966 i.e. 'services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers ' in terms of Notification No. 12/2017-CT(R) dated 28.06.2017 or not?

2. Whether the service of operating mini AC buses by the applicant for BEST would be subject to GST @12% under Tariff Heading 9966 i.e. 'renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient' inserted by way of Notification No.31/2017 dated 13.10.2017? (Amended Notification No. 11/2017-CT(R) dated 28.06.2017).

3. Whether the service of operating mini AC buses by the applicant for BEST would be subject to GST @18% under Tariff Heading 9966 i.e. 'rental service of transport vehicles with or without operators' under Notification No. 11/2017-CT(R) dated 28.06.2017?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act.

2. FACTS AND CONTENTION - AS PER THE APPLICANT FACTS:

A. Statement of relevant facts having a bearing on the question(s) raised

2.1 M.P. Enterprises& Associates Limited, the applicant is as a 'supplier' GSTIN, under the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act, 2017).

2.2 Brihanmumbai Electric Supply and Transport Undertaking (hereinafter referred to as 'BEST') floated a Tender dated 24.08.2019, for operation of stage carriage services for public transport of 500 mini AC buses in Mumbai and its suburbs. The bid submitted by the applicant was accepted.

2.3 Pursuant to the above, applicant entered into an agreement with BEST for operation of stage carriage services for public transport of AC mini buses.

2.4 As per clause 15 of the agreement : applicant is responsible for operation of the buses as per the routes provided by BEST and has to provide competent drivers for the buses;

applicant shall procure only new buses i.e buses newly built on the brand new chassis procured for this Agreement and shall have registration done within 6 months prior to the day of starting of the respective bus ; buses to be procured by applicant shall have valid Type Approval from the competent authorities notified under Central Motor Vehicles Rules, 1989, applicable at the time of delivery of Buses at the area of operation ; the Buses shall have Regional Transport Officer Nos. and BEST Nos. painted as per the BEST'S requirements and shall be as per the specifications and standard colour scheme, wheel base, seating capacity and seating pattern prescribed by BEST ; applicant shall install necessary infrastructure for maintenance of Buses in the space allocated to them for parking and maintenance of Buses; A separate energy meter for requirement of electricity should be installed by the applicant and the applicant should pay electricity charges accordingly; and the maintenance of such infrastructure shall be carried out by the Operator.

2.5 As per Clause 13 thereof, applicant will be paid monthly service charges by BEST on kilometer basis, as per statement showing total run kilometers, Dead kilometers covered from parking place to starting point, extra kilometers covered due to road diversions, effective operated kilometers (after deduction of dead and extra kilometers) However dead kilometers as mentioned herein above shall be paid separately...."

2.6 thus, in terms of above agreement, applicant raised invoice on BEST for service charges along with GST @12% under Tariff heading 9966 in terms of amended Notification No. 11/2017-CT(R) ibid.

2.7 According to the applicant, there is a supply of service being provided to BEST in terms of section 7 of the CGST Act for which consideration is received. Since applicant has rented out its own buses to BEST, they arc of the view that they are liable to pay GST on the said service charges/consideration received from BEST. The rate of tax applicable on the said supply would be @12% in terms of Notification No. 11/2017-CT(R) dated 28.06.2017 as amended by Notification No.31/2017-CT(R) dated 23.10.2017, in as much as the cost of fuel is included in the service charges paid to the applicant by BEST. However, BEST (service recipient) is of the view that services provided by the applicant is exempt from payment of GST in terms of Notification No. 12/2017-CT(R) dated 28.06.2017 (being 'services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than 12 passengers').

B. Statement containing the Applicant's interpretation of Law and/or facts

The following submissions are without prejudice to one another.

2.8 Applicant submits that the service of renting, operation and maintenance of air conditioned mini buses for BEST is a "supply" in terms of section 7 of the CGST Act, 2017 and consequently, would be liable to GST @12% in terms of SI. No. 10 of Notification No.l 1/2017-CT(R) dated 28.06.2017 as amended vide Notification No.31 /2017-CT(R) dated 28.06.2017.

2.9 The only dispute in the subject case is whether, the above activity undertaken by the applicant is "service by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers" or not.

Renting of Vehicle

2.10In the instant case, applicant has entered into a contract with BEST for operation and maintenance of AC mini buses (purchased by the applicant), in Mumbai and suburban areas. Applicant provides drivers for these buses and is also responsible for incurring expenses on fuel and maintenance of the buses. BEST is providing them service charges on kilometer basis. BEST controls the deployment of the fleets, schedules, routes and also the drivers of the operators for purposes of operation of these buses. Applicant cannot run the buses except for BEST. The overall control of the buses is with BEST. All buses brought by the Operator under this Agreement will be subject to the written approval and as per approved specification of BEST.

2.11 In the instant case, ownership of buses lies with the applicant. However, BEST shall have exclusive authority to determine routes and schedules. Also, the driver/s of the Operator i.e. the drivers appointed by the Operators, which is an obligation under the agreement, shall be under the control of BEST which is responsible for controlling the buses as per their schedules, routes and frequency charts. Since the payment of consideration by BEST to the applicant will be on kilometer basis, if the buses are lying idle, no consideration would be payable to the applicant.

2.12 In light of the above facts, it is clear that there is transfer of right to use the buses to BEST. Effective possession (as distinguished from physical possession) and effective control is with BEST. The buses are used by BEST as "stage carriage" and are plying as per directions and control of BEST. Applicant is not free to use the said buses for any purpose other than complete dedication to BEST. Applicant has no right and/or authority in deciding routes, schedules and the frequency of the buses and to decide the fares. Even though the drivers are appointed by the applicant, it is BEST which decides the routes for them. The said activity, according to applicant, shall amount to 'renting of motor vehicle' and qualify as a taxable activity @12% under Notification No. 11/2017-CT(R) dated 28.06.2017 for the reasons explained infra.

2.13The activity, in the instant case, would be renting and not hiring. In case of renting, there is a transfer of possession & effective control to another person. (State of AP V/s Rashtriya Ispat Nigam Limited 2002 89 AIR 1305 SC). In the instant case, the 'effective control' of the vehicle is with BEST in entirety. The passengers boarding the buses do not even know that the buses are owned and operated by the applicant. The primary activity of "actual running'' of buses is carried out by BEST. This fact is conclusive evidence that the goods (buses) are under the effective possession, control and enjoyment of BEST. Thus, it is clear that the applicant has rented out these buses to BEST.

2.14 The above submission is supported by judgment dated 28.01.2011 of the Hon'ble Andhra Pradesh High Court in G. S. Lamba and Sons V/s State of Andhra Pradesh. In that case the petitioner had supplied transit mixers (painted with Grasim Logo) to Grasim idustries Limited for transportation and delivery of Ready Mix Concrete (RMC). The mixers Were available at direction and instructions of Grasim 24X7 and would follow the delivery schedule and routes provided by Grasim. The Hon'ble High Court held that the same would amount to transfer of right to use goods to Grasim.

2.15 In Krushna Chandra Behera V/s State of Orissa 1991 83 STC 325 (Orissa), the assesse had given buses on hire to Orissa State Road Transport Corporation. The assesse had provided the driver and was also responsible for carrying out repairs to the said buses. The assesse was bound by the directions and orders of the corporation in regard to journey, operation, timings, routes, haltage etc. The driver provided by the assesse had to follow the directions, orders and instructions of the authorized officials of the State Road Transportation Corporation. Thus, the Orissa High Court held that the transaction was one of transfer of right to use goods in as much as the customer was in "possession" of the vehicle and distinguished mere custody from possession. This ruling would apply on all fours to the facts of the present case.

2.16 The transaction, in question, amounts to renting of vehicles and not hiring of vehicles in as much as the effective control for running/operation of the buses as well as the possession lies with BEST. The distinction between the term 'hiring' and 'renting' was explained in the case of CCE V/s Sachin Malhotra 2014 (10) TMI 816 wherein it was held that when the owner of the vehicle, who may or may not be the driver, retains the entire control and possession of the vehicle, then such an act shall amount to hiring. However, in the case of renting, the control as well as possession is transferred by the owner to another person. A similar ruling by CESTAT in the case of R.S Travels vs. CCE 2008 (12) STR 27 has been upheld by the Uttarakhand High Court.

2.17 The distinction between hiring and renting has been lucidly illustrated by the Hon'ble Andhra Pradesh High Court in Lakshmi Audio Visual Inc. V/s Assistant Commissioner 2001 124 STC 426 Kar.

2.18 The transaction between BEST and applicant is not one of hiring. The transaction between BEST and its passengers is one of hiring. The passenger pays the designated fare for transportation. Service charges paid to applicant are neither based on the number of passengers nor based on the number of buses. Rather, it based on kilometers run by the buses. Thus the activity, in the instant case, is not one of hiring but renting of the buses.

2.19 Hence, it is submitted that the service provided by the applicant is one of giving buses on rent to BEST. It will not amount to hiring.

Residuary Entry

2.20 The second issue that needs consideration is one of rate of tax. GST Tariff Act, 2017 provides for three kinds of categories of 'renting' under Tariff Heading 9966 as notified by Notification No. 11/2017-CT(R) dated 28.06.2017 amended by Notification No.31/ 2017-CT(R)dated 23.10.2017), namely-

1. Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, wherein the GST rate is 5% provided that no ITC is availed;

2. Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, wherein the GST rate is 12% with consequential benefit of input tax credit;

3. Rental services of transport vehicles with or without operators, other than (i) & (ii) above.

2.23 On perusal of the above entries, it is seen that the activity of the applicant will fall under 'renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient' as inserted by Notification No.31 /2017-CT(R) dated 23.10.2017. The choice of rate of tax is option available to the assessee.

2.24 It is significant to mention that inclusion of fuel charges in the service charges paid by BEST to the applicant is a question of fact. Thus, clause (i) and clause (ii) are fact based entries. It may differ from case to case. Once the fact is satisfied, the entry would be attracted. In the instant case, based on facts, the activity undertaken by applicant would be covered by clause (ii).

2.25 The entry i.e. renting of vehicle run by operators is a residuary entry. It is evident from a plain reading of the said entry where the activity does not fall under clause (i) or (ii), then only clause (iii) would be attracted. Thus, once the activity falls under clause (ii), it cannot be put under the residuary entry at clause (iii). It is well settled that when there is a conflict between two entries, one leading to an opinion that it comes within the purview of the tariff entries and another within the purview of residuary entry, the former should be preferred. Residuary entry will come into play only upon non-application of the other existing entries. Reliance is placed on Mauri Yeast India Pvt. Ltd Vs State of UP reported at [2008] INSC 621, wherein the Hon'ble Supreme Court held the following:-

"48. We, therefore, are of the opinion that if there is a conflict between two entries one heading to an opinion that it comes within the purview of the tariff entry and another the residuary entry, the former should be preferred. "

2.26 It is also important to mention, that applicant will not be covered under SI. No (ii) of Tariff Heading 9964 i.e. 'transport of passengers, with or without accompanied belongings by air conditioned stage carriage' in as much as such an activity involves only transportation of passengers and goods. It is an activity undertaken by the stage carriage. The said activity is being undertaken by BEST. Hence, the activity of renting of motor vehicles by the applicant would not fall under this entry as well.

2.27 In view of the above discussion, it is clear that applicant would be covered by the second entry under Tariff Heading 9966. Hence, the activity will squarely fall under 'renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient' at the rate of 12% in terms of amended Notification No. 11/2017-CT(R).

03, CONTENTION - AS PER THE CONCERNED OFFICER:

The jurisdictional officer has not made any submissions.

04. HEARING

4.1 Preliminary hearing in the matter was held on 09.03.2021. Shri. Mahesh Bhoite from applicant side and Shri. Bharat Raichandani. Advocate & authorized representative of the applicant was present. Jurisdictional officer Shri. Prakash Kulkarni, Deputy Commissioner. PUN-VAT-E-612 was also present. The authorized representative made oral submissions and application was found proper.

4.2 The application was admitted and called for final hearing on 16.03.2019. Shri. Mahesh Bhoite, Shri. Rishabh Jain (C.A) from applicant side and Shri. Bharat Raichandani, Advocate & authorized representative of the applicant was present. Jurisdictional officer Shri. Prakash Kulkarni, Deputy Commissioner, PUN-VAT-E-612 was also present. Jurisdictional Officer informed that written contention will be submitted.

4.3 We heard the matter.

05. DISCUSSIONS AND FINDINGS:

5.1 We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional officer.

5.2 M.P. Enterprises & Associates Limited, the applicant has entered into an agreement with BEST for operation of stage carriage services for public transport of AC mini buses.

5.3 As per the said agreement: Applicant is responsible for operation of the buses in compliance with the routes provided by BEST ; Applicant has to provide duly licensed and competent drivers for operation of the buses ; Applicant shall procure only new buses as per the specifications provided by the BEST ; The Buses offered by the Applicant shall have registration done within 6 months prior to the day of starting of the respective bus ; The Buses shall have Regional Transport Officer Nos. and BEST Nos. painted as per the BEST'S requirements and shall be as per the specifications and standard colour scheme, wheel base, sealing capacity and seating pattern prescribed by BEST ; Applicant shall install necessary infrastructure for maintenance of Buses in the space allocated them for parking and maintenance of Buses ; A separate energy meter for requirement of electricity should be installed by Applicant and the Applicant should pay electricity charges ; Maintenance of such infrastructure shall be carried out by the Applicant ; Operate the Buses including routes, frequency and schedules as may be specified by BEST from time to time in writing as per the Fleet Deployment Plan.

5.4 Further, as per the agreement, the applicant will be paid service charges by BEST, on a monthly basis, on kilometer basis which implies that even the cost of fuel is included in the service charges paid to the applicant by BEST. The applicant would be separately be paid charges for dead kilometers (kilometers covered from parking place to starting point). If the buses are lying idle, no consideration would be payable to the applicant. The applicant raises invoice on BEST for service charges along with GST thereon.

5.5 According to the applicant the only dispute is whether the subject activity undertaken by them is "service by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers" or not.

5.6 We find that in the instant case, the applicant has an agreement with BEST for operation and maintenance of AC mini buses in Mumbai and suburban areas. The applicants owns buses, provides drivers and also incurs expenses on fuel and maintenance of the buses. For all these services provided by the applicant, BEST is paying them service charges on kilometer basis.

5.7 We also find that it is the BEST which controls the deployment of the fleets, the schedules and routes and also the applicant's drivers for operating these buses. A perusal of the agreement reveals that the applicant cannot run the buses on their own because the overall control of the buses is with BEST. Even the buses are required to be as per the specifications approved by BEST.

5.8 As per the agreement, Vehicle Registration Charges, Insurance premium for the Buses and other assets owned by the Operator and Motor Vehicle tax within Municipal Limit of Mumbai area will be paid by applicant whereas passenger tax, stage carriage permit, GST and toll tax will be paid by BEST. Whereas, the ownership of the buses lies with the applicant, BEST shall have the exclusive authority to determine routes and schedules and even the drivers shall be under the administrative control of BEST.

5.9 We agree with the submissions made by the applicant that, there is transfer of right to use the buses to BEST by way of effective possession as well as effective control as is seen from the fact that : the buses are plying as per directions and control of BEST ; applicant is not free to use the said buses for any purpose other than eomplete dedication to BEST ; the buses are parked only in the depots owned by BEST ; applicant has no right and/or authority in deciding the routes, schedules and the frequency of the buses and to decide the fares. All the buses are painted in red colour and are embodied with "BEST5' logo on all sides. The drivers are also under the administrative control of BEST, who decides the routes for them.

5.10 In the case of transportation of passengers, the recipient of service would be the passenger whereas in the case of renting of any motor vehicle, the recipient would not be the passenger. In the subject case, the consideration for supply of service is charged from BEST and not the passenger. Therefore in the subject case it is clear that the recipient of service is BEST. Hence, we have no hesitation in holding that the subject activity, amounts to 'renting of motor vehicle' and shall qualify as a taxable activity under the provisions of the GST Laws. Since the subject activity is taxable, the provisions of Notification No. 12/2017-CT (R) dated 28.06.2017 is not applicable in the subject case. This will answer the first question raised by the applicant.

5.11 The second question raised by the applicant is Whether the service of operating mini AC buses as in the subject case would be subject to GST @12% under Tariff Heading 9966 i.e. 'renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient' inserted by way of amendment Notification No.31/2017 dated 13.10.2017.

5.12 Sr. No. 10 of Notification No. 11/2017 -CT (Rate) dated 28.06.2017 is reproduced as under:-

In the subject case, there is a supply of rental services of transport vehicle where the operator (driver) is also supplied by the applicant to BEST. Hence such rental services of buses as in the subject case would attract 18% GST. However Notification No. 11/2017 - CT (Rate) dated 28.06.2017 was amended by Notification No. 31/2017 - CT (Rate) dated 13.10.2017 and as per the amendment the Sr No. 10 is as under:-

5.12.2 The subject case is clearly covered by Entrv Sr. No. 10 of Notification No. 11/2017 -CT (Rate) dated 28.06.2017 in as much as there is a Rental services of transport vehicles with or without operators. Therefore for the period up to 13.10.2017 i.e when the said Sr. No. 10 was amended, the applicant's activity would attract GST @ 18%.

5.12.3 The said Sr. No. 10 has been amended w.e.f. 13.10.2017, and all the activities of Renting of any motor vehicle/transport vehicle which is designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient are chargeable to either 2.5% GST or 12% GST depending on availnient of Cenvat Credit. Therefore in the subject case since there is a Renting of any motor vehicle/transport vehicle which is designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient i.e. BEST, the applicant will have to pay GST @ 12% , if credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business (i.e. service procured from another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle) has not been taken. This discussion also decides the third question raised by the applicant.

06. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA-37/2020-21/B-16 Mumbai, dt. 14.06.2021

For reasons as discussed in the body of the order, the questions are answered thus -

Question 1:- Whether the service of operating mini AC buses by the applicant for Brihan Mumbai Electricity Supply Transport Undertaking (BEST) would be exempt from payment of GST under Tariff Heading 9966 i.e. 'services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers' in terms of Notification No. 12/2017-CT(R) dated 28.06.2017 or not?

Answer:- Answered in the negative.

Question 2:- Whether the service of operating mini AC buses by the applicant for BEST would be subject to GST @12% under Tariff Heading 9966 i.e. 'renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient' inserted by way of Notification No.31/2017 dated 13.10.2017? (Amended Notification No.11/ 2017-CT(R) dated 28.06.2017)

Answer:- Answered in the affirmative. However GST @ 12% is chargeable only with effect from 13.10.2017.

Question 3:- Whether the service of operating mini AC buses by the applicant for BEST would be subject to GST @18% under Tariff Heading 9966 i.e. 'rental service of transport vehicles with or without operators' under Notification No. 1 1/2017-CT(R) dated 28.06.2017?

Answer:- Answered in the affirmative. However GST @ 18% is chargeable only till 13.10.2017.

Note :-An Appeal against this advance ruling order shall be made before The Maharashtra Appellate Authority for Advance Ruling for Goods and Services Tax, 15th floor, Air India Building, Nariman Point, Mumbai - 400021.