Leasing of electric bikes without operators is categorized as a financial service, subject to GST at the same rate as the supply of similar goods.

Introduction

M/s True Solar Private Limited is engaged in the supply of goods and services. The company filed an Advance Ruling application on May 24, 2023, seeking clarification on the GST classification for leasing electric vehicles (E-Bikes) without an operator.

Key Query Raised by the Applicant

The applicant sought clarity on whether the leasing of electric vehicles without an operator falls under heading 9973 - “Leasing or rental services without operator” vide Sl. No. 17 (viia) or 17 (iii) of Notification No. 11/2017-CT(R), dated June 28, 2017, as amended by Notification No. 20/2019-CT(R), dated September 30, 2019.

Background of the Lease Agreement

The applicant had entered into a lease agreement with M/s Techsofin Private Limited, providing electric vehicles (E-Bikes) without an operator for a specified period. Before October 1, 2019, classification under Notification No. 11/2017 included headings 9966 (rental services with operator) and 9973 (rental services without operator). Post-amendment, these headings were redefined. The applicant emphasized that their transaction aligns with either Sl. No. 17 (iii) or Sl. No. 17 (viia) under heading 9973.

Contrasting Views of the Odisha AAR Members

1. SGST Member's View:

   • Classified the leasing of electric vehicles without an operator under heading 9971 (Financial and related services), citing entry Sl. No. 15 (ii) of Notification No. 11/2017-CT(R).

   • The applicable tax rate would align with the rate on the supply of similar goods involving the transfer of title.

2. CGST Member's View:

   • Suggested classification under heading 9971 as well but referred to entry Sl. No. 15 (vii) of the same notification.

   • The tax rate was specified as 18% (CGST: 9% + SGST: 9%).

Due to the differing opinions, the matter was referred to the Appellate Authority for Advance Ruling (AAAR), Odisha, under Section 98(5) of the CGST Act, 2017.

Discussion and Findings

Nature of the Lease Agreement

The AAAR scrutinized the lease agreement between True Solar Pvt. Ltd. (lessor) and Techsofin Pvt. Ltd. (lessee) to determine whether the transaction qualifies as a financial or operating lease. Key observations:

1. Long-Term Contract:

   • The agreement covers 48 months, a significant portion of the economic life of the E-Bikes.

   • Lease charges over the term approximate the asset’s value, indicating a financial lease.

2. Maintenance and Risk Allocation:

   • The lessee is responsible for maintenance, insurance, legal documentation, and other expenses.

   • The lessee holds an option to purchase the leased asset after the contract’s term.

3. Transfer of Right to Use:

   • The agreement transfers possession and control of the E-Bikes exclusively to the lessee.

   • The lessor retains no rights to reassign or utilize the assets during the lease term.

These factors align with the attributes of a financial lease, as outlined by the Hon'ble Supreme Court in Bharat Sanchar Nigam Limited v. Union of India.

Classification and Tax Rate

Based on the lease agreement’s terms and established legal principles:

• The transaction qualifies under heading 9971 (Financial and related services).

• Specifically, entry Sl. No. 15 (ii) of Notification No. 11/2017-CT(R) applies, categorizing the transaction as a transfer of the right to use goods.

• The applicable tax rate corresponds to the supply rate of similar goods involving a title transfer.

Ruling by AAAR Odisha

The AAAR concluded that leasing electric vehicles without an operator by M/s True Solar Pvt. Ltd. is classifiable under heading 9971. The tax rate matches that of goods involving the transfer of title.

GST Case law True Solar Private Limited

Citation-2024 TAXONATION 3529 (ODISHA-AAR)

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