5% GST Applicable on Passenger Transport service by E-Commerce Operator

5% GST Applicable on Passenger Transport service by E-Commerce Operator Introduction: An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding the supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advance Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appellant authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on a resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR. The question of law which are address through this AAR are as follows:

• Whether e-commerce operators are subject to registration under GST
• The value of supply to be considered
• The classification of the supply under the appropriate scheme
• The rate of GST to be applicable on the value of taxable service

Facts of the application made to AAR, by taxpayer ‘M/S. Gensol Ventures Pvt. Ltd. (applicant)’, dated 27-Aug-2021:

The applicant, M/S.Gensol Ventures Pvt. Ltd. operates an electronic platform through which customers can book cabs. The amounts charged from customers by applicant is after providing a discount to them and these discounts are borne by the applicant. The discounts are accounted as marketing expenditures in the books of accounts of the organization. The charges received from the customers are paid in full to the drivers after deducting commission charges by the applicant for using the applicant’s electronic platform by the drivers to get rides from customers. The drivers list their vehicles on the electronic platform of the applicant for booking by customers and are connected to the central office and are tracked through the GPS (Global Positioning System) or GPRS (General Packet Radio Service). The mode of functioning of the applicant is therefore classified as e-commerce operator and the applicant’s electronic platform falls under the category of e-commerce as per definitions provided under Section 2 of the CGST Act. The applicant is also aware that they have to pay 18% tax on the commission charged by them from drivers. The applicant has made the present application to AAR to seek answers to the following questions and also provided corresponding explanation related to applicability under the GST Act:

1. Whether applicant is to be registered as a e-commerce operator and classified as such
2. Whether the applicant is liable to pay GST under Section 9(5) of the CGST Act, 2017
3. If GST liability is applicable to applicant, what will be the value of service which has to be considered and
4. What would be the rate of tax applicable for the service provided and the service accounting code applicable as per GST law for the applicant

Question 1 was raised by the applicant because as per Section 9(5) of the CGST Act, there are certain category of suppliers services who are exempt from being registered under the Act and hence exempt from paying GST. As per Section 9(5), every e-commerce operator who owns an electronic platform through which it provides services, is required to be registered under the CGST Act, irrespective of the threshold generated by it. For notified services under Section 9(5) which includes, passenger transport service, accommodation service and house-keeping service, the suppliers registered with the e-commerce operator need not be registered under GST Act. But the e-commerce operator has to be compulsorily be registered under Clause (iv) of Section 24 of CGST Act, 2017. Hence the applicant answered affirmative to question 1 and required confirmation on the same from the AAR. As for Question 2 whether the applicant is liable to pay GST under Section 9(5) of the CGST Act, 2017, the applicant being a e-commerce operator and classified under e-commerce, is liable to pay GST under Section 9(5) of the CGST Act, 2017. It is only the Drivers who need not be registered and liable to pay tax under as per Section 9(5) of CGST Act. But the applicant is liable to pay GST under Section 9(5) of the CGST Act as they are e-commerce operators and the threshold limit is not applicable for such a supplier of service. As for Question 3, the value of service which will be considered will be the value of fare’s charged by M/S. Gensol Ventures Pvt. Ltd., to its customers. As mentioned above, the fare which is charged to the customer is excluding the discount given to each customer which is considered as marketing expenditure by the applicant. As per Section 15(3) of the valuation of services under CGST Act, the value of supply of service should not include discounts given to the customer. In tis case, the applicant collects the fare charges from the customer and remits them to the driver’s. There are two components associated with the payment made by applicant to the drivers namely, the dare collected from customer and secondly the amount offered as discount to customer, which is borne by the applicant and accounted as marketing expense. Since the driver’s are not providing any value as far as the discount offered by applicant, this cannot construed as service offered by driver and hence have to be excluded from the value of supply of service, for computation of GST. In an Bombay High Court ruling namely Bai Mamubai Trust and others VS. Suchitra it was contended that reciprocal obligation is essential to be classified as supply. Since in this instant case there is no enforceable reciprocal obligation by driver on the discount received by them, it cannot be considered a supply and form part of value of service. As for Question 4, related to the rate of tax applicable for the service provided and the service accounting code applicable as per GST law for the applicant, considering the relevant provisions of Notification No. 11/2017-CT (Rate) dated 28.Jun.2016, Entry 8(ii) provides that the rate shall be 5% GST for transportation of passengers with or without accompanied belongings by radio taxi, provided credit of input tax used in supplying such service has not been taken. The input tax credit in this case is the commission received by the applicant from the driver’s for using their electronic platform and connecting to customers. And the GST rate on this service rendered is 18%. Whereas the GST rate on the invoice charged to the customer is at 5%. Since the applicant is a e-commerce operator, the input GST is on forward charge basis. Even though Entry 8(vi) of the notification provides a conflicting rate of 12% on motor vehicles, the applicant is of the contention that they will charge GST at 5% (2.5% CGST and 2.5% SGST) as they are e-commerce operators and the service account number (SAC) shall be ‘996412-Taxi Services including radio taxi and other similar services’.

Observations and final ruling by AAR vide Order No. GUJ/GAAR/R/48/2021 dated 27. Aug. 2021:

The personal hearing by the AAR was on 12. Aug. 2021 and Devam Seth appeared on behalf of the applicant and reiterated the facts as stated above. He also submitted that the applicant knows that the GST charges on the commission taken by the applicant, is 18% and the query is on the GST liability in terms of passenger transportation services. Further, the AAR clarified that the CGST Act and SGST Act replicate themselves except in a few instances which is outside the scope of this case. The AAR was also of similar view of the applicant and provided ruling as follows.

• The applicant is an e-commerce operator and shall be compulsorily be registered
• The applicant has to pay GST under Section 9(5) of CGST Act
• The value of supply shall not include the discount provided by the applicant to its customers and exclude such a discount and
• The SAC for the instant case is 996412 and the GST rate shall be 5% subject to the condition stipulated under Entry 8(ii) of Notification No. 11/2017-CT(R ) dated 28. Jun. 2017