Mrs. Mohana Ghosh (“the applicant”) purchase motor vehicle and supply as cabs on a rental basis (“rent-a-cab services”).
Whether ITC is admissible on the purchase of motor vehicles for the supply of cabs on a rental basis?
Applicant’s Interpretation of law:
The applicant contended that the supplies are in the nature of rent-a-cab service, as defined in the Finance Act, 1994. The applicant also refers to Section 17(5)(a)(B) of the CGST Act, 2017 (“CGST Act”) that allows credit of input tax paid on the purchase of motor vehicles when used for supplying passenger transportation service.
Further, it was contended that people take the car on rent for the transportation of passengers. Rent-a-Cab is, therefore, essentially associated with the transportation of passengers. GST paid on the purchase of motor vehicles for supplying rent-a-cab service should, therefore, be admissible in terms of Section 17(5)(a)(b) of the CGST Act.
Observations and findings:
The CGST Act has been amended w.e.f February 1, 2019, before amendment the provisions of Section 17(5)(b)(iii) of the CGST Act did not allow credit of GST paid on inputs for supply of rent-a-cab service, except under certain specific conditions that are not applicable in the applicant’s case. As per amended provisions of Section 17(5)(b)(iii) of the CGST Act do not contain a reference to the rent-a-cab service. However, post-amendment, input tax credit shall not be available in respect of supply of the service of renting or hiring of motor vehicles in terms of Section 17(5)(b)(i) of the CGST Act, unless the inward and the outward supplies are of the same category, standalone or as an element of a taxable composite or mixed supply.
Further, the nature of the applicant’s service is rent-a-cab that is not defined in the CGST Act. Therefore, ascertained from the invoices, the applicant 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. For the purpose of covering the cost of fuel, the distance travelled needs to be brought into play, but only if it crosses a certain threshold.
Therefore, it is clear that the nature of the service the applicant provides is classifiable under SAC 9966 as renting of a motor vehicle. The credit of GST paid on purchase of motor vehicles or other inputs for the supply of the applicant’s service is not admissible in terms of Section 17(5)(b)(i) of the CGST Act.
The Hon’ble AAR, West Bengal vide Order No. 06/WBAAR/2019-20 dated June 10, 2019 held that GST paid on the purchase of motor vehicles for supplying rent-a-cab service is not admissible for credit in terms of Section 17(5)(b)(i) of the CGST Act.
Citation:  106 taxmann.com 108 (AAR-WEST BENGAL)