The Gujarat Authority for Advance Ruling (AAR) has held that for purposes of serial no. 10 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, “electricity” is not “fuel”. Therefore, rental services of electric buses with operators do not fall within entry 10(i), which applies where the cost of fuel is included in the consideration for renting motor vehicles designed to carry passengers. Such services fall within the residual entry 10(iii) and are taxable at 18%.
The AAR ruled that entry 10(i) covers rental services of motor vehicles with operators where cost of fuel is included in the consideration; the applicant’s electric bus services are not covered under entry 10(i); and the applicant’s services are covered under entry 10(iii) of Notification No. 11/2017-CT(R), as amended.
The Division Bench comprising Vishal Malani (CGST Member) and Sushma Vora (SGST Member) observed that the applicant’s services fell under SAC 996601, and relied on the terms of the concession agreement, noting that the buses were given on rent along with driver/operator, while Surat Sitilink Limited determined schedules and routes.
The Authority then examined entry 10 of Notification No. 11/2017-CT(R). It observed that entry 10(i) applies to renting of motor vehicles designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, whereas entry 10(iii) is the residual entry for rental services of transport vehicles with operators other than those specifically covered under sub-entries (i), (ia) and (ii). It identified the inclusion of fuel cost in the consideration as the determinative factor between entry 10(i) and entry 10(iii).
Before addressing whether fuel cost was included, the Authority considered whether electricity can legally be treated as “fuel”. It noted that the CGST Act does not define “fuel” and therefore resorted to dictionary meanings. Based on those meanings and scientific distinction, it observed that fuel is ordinarily a combustible material used to produce heat or power, whereas electricity is a secondary energy carrier, not a combustible substance and not a primary fuel source.
The Authority also attached significance to Notification No. 12/2017-CT(R), which specifically refers to and defines “electrically operated vehicle” for exemption purposes when given on hire to a local authority. It treated this as indicative of legislative intent to distinguish electrically operated vehicles from vehicles using traditional fuels. Relying on the principle that taxing notifications must be interpreted strictly and nothing can be implied into them, it held that the term “fuel” in Notification No. 11/2017-CT(R) cannot be expanded to include electricity.
Once it concluded that electricity falls outside the scope of “fuel”, the Authority stated that the question whether fuel cost is included in the consideration became redundant in this case. It therefore held that the applicant’s services are covered by entry 10(iii) and taxable at 18%.
Briefly, the applicant, a GST-registered entity, is engaged in end-to-end operation and maintenance of electric buses, including plying them on prescribed routes and schedules, with consideration payable on a gross cost contract basis linked to kilometres travelled. It had applied for an advance ruling under section 97(2)(e) of the CGST/GGST Act, 2017.
The transaction arose under the National Electric Bus Program. A request for proposal was floated for procurement, operation and maintenance of 150 air-conditioned 12 metre BRTS electric buses in Surat. The applicant was the successful bidder, was incorporated as a special purpose vehicle pursuant to the tender conditions, and entered into a Master Concession Agreement with Surat Municipal Corporation. Subsequently, by a tripartite agreement, SMC assigned its rights and responsibilities relating to supervision and payment processing to Surat Sitilink Limited, its wholly owned subsidiary.
Under the concession arrangement, the applicant was required to supply buses conforming to specified standards, operate and maintain them in accordance with applicable law, and install, operate and maintain charging infrastructure. Consideration was computed by multiplying aggregate bus kilometres by INR 59.29, and monthly invoices were to be raised on Surat Sitilink Limited, which was liable to pay within thirty days of submission.
The applicant contended that the service was classifiable under SAC 996601 as rental services of road vehicles including buses with operator. The central issue raised was whether, for entry 10(i) of Notification No. 11/2017-Central Tax (Rate), electricity could be treated as “fuel” so that the concessional rate applicable where fuel cost is included in the consideration would apply; otherwise, the service would fall under the residual entry 10(iii).
Appearances:
Kavish Goyal, Tax Head, JBM; and Rohan Pahwa, Advocate, for the Applicant
