GST Applicable on auto-rickshaw ride and non-AC stage carriage ticket booked through ECO: HC

Writ petitions have been filed by Uber India Systems Private Limited in W.P.(C) No. 14048 of 2021 (‘Petitioner 1’), Pragatisheel Auto Rickshaw Driver Union in W.P.(C) No. 14579 of 2021 (‘Petitioner 2’) and IBIBO Group Private Limited along with Make My Trip (India) Private Limited in W.P.(C) 14826/2021 (collectively referred to as ‘Petitioner 3’). The petitions have been filed challenging the Clauses (iii) and (iv) of Notification No. 16/2021- Central Tax (Rate) and Clauses 1(i) and 2(i) of Notification No. 17/2021 – Central Tax (Rate), both dated 18.11.2021 [‘impugned Notifications’], as ultra vires to the Constitution of India (‘Constitution’) and Section 9(5) and 11 of Central Goods and Service Tax Act, 2017 (‘the Act of 2017’).

Petitioners have challenged notifications withdrawing exemption from GST to service of transportation by auto rickshaw and non-AC stage carriage provided through e-commerce operators on the grounds that:

a) impugned Notifications fail to satisfy the test of reasonable classification under Article 14 of the Constitution as there is differential treatment between auto rickshaw drivers providing services through the Petitioner 1 and street hailing auto rickshaw drivers; it suffers from palpable arbitrariness and not in conformity with the doctrine of level playing field;

b) they are against public interest and impact the livelihood of the auto rickshaw drivers providing services through ECOs and freedom of choice to the consumers/riders (‘consumers’), thereby violating Articles 19(1)(g) and 21 of the Constitution;

c) the value of conveniences offered by ECOs, i.e., Petitioner 1 is charged separately and liable to GST; and there are no other instances of transportations supplied through ECOs being taxed differently such as that levied through the impugned Notifications, therefore, the same are liable to be struck down.

The Dispute:

The crux of the dispute in the present batch of writ petitions is whether the impugned Notifications arbitrarily create a classification between the ECOs and the individual service providers solely based on the ‘mode of booking’ availed by the consumer for availing the said service; and consequently, discriminates against the ECOs by denying the ECOs the benefit of exemption available to the individual service providers under the parent Notification.

Discussion:

The statute itself recognises the ECOs as a distinct and separate class from the individual service providers

The provisions of the Act of 2017 itself recognise the ECOs as a class separate from the individual service providers selling their services through the e-commerce platform. In fact, notifications issued under Section 9(5) of the Act of 2017 thereunder from time to time give effect to this statutory classification.

ECOs seeking parity with the individual auto-rickshaw drivers and bus operators and therefore seek equality amongst unequals

In the opinion of this Court, this distinguishing fact would equally apply to auto-rickshaw drivers who are street hailed. It is an admitted fact that ECO charges commission to the auto-rickshaw drivers for providing the digital platform to get connected with the potential consumer, which is in addition to the conveyance charges the ECO collects from the consumers. The auto rickshaw driver who is street hailed does not have to pay this commission to the ECO. The exemption from GST available to a street hailed auto rickshaw driver therefore provides the individual auto rickshaw driver the capacity to economically compete with the services provided by the ECO and have an option to operate independently.

Petitioner not acting as agents of the auto-rickshaw drivers and the bus-operators.

Petitioner 1 and 3 are not acting as agents of the auto-rickshaw drivers and the bus-operators. The ECOs charge commission to the registered driver partners and the bus operators for providing digital platform to connect with the potential consumers. This is in addition to the convenience charge, the ECOs collect from the consumer.

The ECOs like Petitioner 1 and 3 assure a quality of service to the consumer with value added services such as security, digital payments, etc., which is in addition to the service provided by the individual suppliers.

For instance, in case of the cancellation of the ride, the refunds are an issue arising between the ECO and the consumer, without any reference to the supplier. Similarly, the services which are provided by the ECO to the consumer has add on features for which the ECO assumes responsibility. The consumer while opting to avail the services of ECO, is also opting for these add on services and therefore, the ECO itself steps into the shoes of the supplier and is not acting as an agent of the supplier.

In this conspectus of facts, the contention of the Petitioner 1 and 3 that ECOs are merely a platform which facilitates a mode of booking, is incorrect as the ECOs assume responsibility for the discharge of services assured by the ECOs to the consumer, which are rendered by the ECO. The ECOs are providing bundle of services and partake a charge/commission from both the consumers and the individual supplier. Therefore, for all purposes, the ECOs are an independent supplier of service to the consumer. And, the service provided by the individual supplier is only one facet of the bundle of services assured by the ECOs to the consumer booking through it. Hence, the impugned Notifications do not result in discrimination on the basis of the mode of booking.

Conclusion

24. Therefore, the conclusions drawn by this Court are as under:

a) the Clauses (iii) and (iv) of Notification No. 16/2021- Central Tax (Rate) and Clauses 1(i) and 2(i) of Notification No. 17/2021- Central Tax (Rate), both dated 18.11.2021 are not violative of Articles 14, 19(1)(g) and 21 of the Constitution;

b) the impugned Notifications do not create an unreasonable classification on the basis of the ‘mode of booking’ availed by the consumers;

c) the Respondents are empowered to issue the impugned Notifications under Section 9(5) and 11 of the Act of 2017 and we are, therefore, unable to accept the challenge to the constitutional validity of the said notifications.

In view of the aforesaid findings, we are of the view that the Petitioner 1, 2 and 3 are not entitled to the reliefs as sought in the writ petitions. Therefore, the present batch of writ petitions are dismissed. The pending applications stand disposed of.

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