The Haryana Authority for Advance Ruling ( AAR ) ruled that the Goods and Services Tax ( GST ) Rate is applicable on the lease of pre-owned motor vehicles as per the notification of the Central Tax Rate.
The applicable rate of tax on the supply made by the applicant is to be determined in accordance with serial no. 17(vi) of Notification No.11/2017- Central Tax (Rate) dated 28-06-2017 as mended.
The issue before the authority is whether GST Rate and HSN applicable to the monthly lease fees received from customers for leasing pre-owned Cars would be determined in accordance with serial no. 17 (vija) of Notification No. 1 1/2017-Central Tax (Rate) dated 28-06- 2017 read with Notification No. 08/2018-Central Tax (Rate) dated 25th January 2018? If not, then what would be the GST rate and HSN so applicable on the said transaction?
The applicant M/s Dream Road Technologies Private Limited, a Car leasing Company with the name “PumPumPum”. The Applicant provides the private number (White Plate) of pre-owned cars on lease to the individuals.
The Applicant enters into different Motor Vehicle Lease Agreements (“MVLA”) with its customers depending upon the type of customer.
The bench of Sunder Lal and Kumud Singh, after perusing all the aspects of the matter at hand i.e. the factual details as well as the legal provision applicable observed that in the present case, it can be said that the supply of leasing of the pre-owned motor vehicle is for the furtherance of business.
Further, it is apt to mention here that the purchaser/owner of motor vehicles needs to follow the provisions of the Motor Vehicles Act, 1988 along with applicable rules. And in the present matter, this supply of leasing of motor vehicles falls under the scope of supply as defined in section 7 of the Central Goods and Services Tax Act, 2017.
According to the authority, leasing a pre-owned vehicle is a taxable event, and the rate of tax is to be determined in accordance with notification no. 11/2017-CT(R) dated as amended, serial no. 17 (VI), which states that the tax is to be charged at “the same rate of central tax as applicable on supply of like goods involving the transfer of title in goods.” Also, the applicable compensation cess must be calculated in line with notification no. 1/2017-compensation cess (Rate), which has been issued on June 28, 2017.
It was also noted that notification no. 8/2018 – Central Tax (Rate) dated January 25, 2018, which is relevant to the sale of old and used vehicles, does not apply to the provision of leasing of pre-owned vehicles. Rule 35 of the CGST Rules, 2017 must be read in conjunction with this notification.
It shall not apply in the case of motor vehicles given on lease. In the case of transfer of the right to use any goods i.e. leasing, the applicable rate of tax is the same as of new vehicles under the GST Act and the compensation cess is also as on the supply of similar goods.
The leasing of used cars cannot be considered to be renting or leasing of items like laptops, furniture, refrigerators, air conditioners, etc., according to the authorities. The tax rates for new vehicles are to be applied in this case based on the vehicles’ specifications, such as their size, engine capacity, fuel type, etc.
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