Know GST on Taxi operator model

Fact and Issue of the case

M/s. Kou-Chan Technologies Pvt. Ltd., is a Private Limited Company registered under the Goods and Services Tax Act, 2017 and proposes to operate a mobile based taxi aggregation service, on a pan-India basis under the trade name “DYUT RIDES”. Thus, the applicant sought advance ruling in respect of the following questions: –

a. Do the various supplies (of the Applicant, the Vehicle Owner, the Driver and the Associate partner together) mentioned supra qualify as ‘Composite Supply ‘?

b. Do the pick-up charges paid to the Owner/ Driver fall under GST rate of 5%?

c. Do the service charges collected from the passengers fall under GST rate of 5%? In this connection a reference may be made to Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 – Sl.No.8.

d. The Associate Partner renders services to the Passengers and to the Drivers/ Vehicle Owners directly, and in that case does any supply of service exist between the Applicant/Aggregator and the Associate Partner, and if yes, what is the rate at which GST has to be collected and remitted? It may be noted that the Associate Partner is paid up to 10ps per transaction as explained in the above said example.

e. Does the amount received from the Owners / Drivers towards bidding get covered in the 5% GST or should it be separately charged at 18%? It may be noted that to participate in the bid, the drivers have to pay to the Applicant @ 3 Ops per bid and GST.

f. Does the Goodwill Bonus being paid by Passenger to the Driver for good service and on which the Applicant collects the service charges, attract GST and if so at what rate?

g. Do the charges for cancelling the trip for any reason attract GST liability?

h. Do the charges for insurance come under composite supply?

i. If the Principal supplier/Applicant collects GST, say at 5% along with fare from Passengers (please see table above) and remits that amount, does it amount to compliance of the GST rules?

Observation by the AAR:

The conditions for a supply to be considered as a Composite Supply are (i) the supplier (taxable person) should supply two or more taxable supplies to a recipient, (ii) the said supplies should be naturally bundled and (iii) the supplies should be supplied in conjunction with each other, in the ordinary course of business, one of which is a principal supply. In the instant case, we observe that the applicant is providing two taxable services, i.e. providing an online platform and insurance coverage to the passenger. It is an admitted fact that the insurance coverage to the passenger is optional and also online platform service is neither related to nor ancillary to insurance service. Thus these two supplies are not naturally bundled. Further the said supplies are not in conjunction with each other, in the ordinary course of business. Therefore, we conclude that the activities performed by the applicant do not amount to a composite supply.

The second question is whether the pick-up charges paid to the owner / driver fall under GST rate of 5%?

The applicant proposes, in their business model, to collect “Passenger Convenience Charges”, from the passenger, in addition to the basic fare, in terms of Para 8 of the Terms and Conditions for registration of passengers with the applicant’s platform, which include various kinds of incentives payable to vehicle owners/drivers.

In the instant issue, the driver provides the pick-up service to the passenger and the consideration for the said service is collected from the passenger by the applicant through their e-commerce platform. The driver need to pick up the passenger before starting of the radio taxi service and hence the pick-up service is incidental to the main service of transportation of passengers by the drivers. The applicant has been made liable for paying the tax in respect of the said service through the e-commerce platform, as if the applicant is the supplier of such service, in terms of Section 9(5) of the CGST Act, 2017. Further, Notification No. 17/2017-Central Tax (Rate) dated 28.06.2017 stipulates that an electronic commerce operator is supposed to pay GST for services by way of transportation of passengers by a radio taxi.

In view of the foregoing, we find that the pick-up charges and basic fare are part of the service of transportation of passengers by a radio taxi and hence the applicant is liable to pay GST @ 5%, on the pick-up charges also.

The third question is related to the Associate Partner, who renders services to the passengers and to the drivers/ vehicle owners directly and the question is whether any supply of service exists between the applicant /aggregator and the Associate partner, & if yes, what is the rate at which GST has to be collected and remitted?

We find that in the instant case the associate partner is providing services to the applicant. The impugned services of associate partner are covered by clause (ii) of Sr. No. 23 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 and hence GST @ 18 % has to be paid by associate partners in case the associate partner is registered under GST. In the case where the associate partners are not registered under GST due to threshold limit, no GST is leviable on the amount remitted to the associate partner.

The 4th question is related to bidding charges, i.e. whether the amount received from drivers/owners towards bidding gets covered in the 5 % GST or should it be separately charged at 18%?

We find that the amount received as a bidding charge is outside the fold of basic fare i.e. the relevant service is not related to the service provided by the owner/driver to the passenger/customer through the e-commerce operator. We therefore find that 5% GST rate is not applicable. Explanatory Notes to the scheme of classification of services under heading 998599 describes ”other support services” as:-

this service code includes business brokerage and appraisal services other than for real estate; business services of intermediaries and brokers; specialist advice other than for real estate, insurance and engineering (specialist services in art, specialist services for courts of law, etc.); services by agencies and agents on behalf of individuals seeking engagements in motion pictures, theatrical productions, modelling or other entertainment or sports attractions; placement of books, plays, artwork, photographs, etc., with publishers, producers, etc.; issue of reduced-price coupons and gift stamps; management services for copyrights and their revenues (except from films); management services for rights to industrial property (patents, Page 83 of 129 licences, trademarks, franchises, etc.); auctioning services other than in connection with legal procedures; reading of electric, gas and water meters; data preparation services; specialized stenotype services such as court reporting; public stenography services; other business support services not elsewhere classified.

The fifth question is related to the goodwill bonus being paid by passenger to the driver and on which the applicant collects the service charges, i.e whether the service charges so collected attract GST and if so at what rate?

We find that goodwill bonus is a voluntary payment made by passengers when they are happy with the service provided by the drivers. It is outside the fold of basic fare charged from the passengers for the trip. The applicant collects service charge on the goodwill amount. We find that the service charge collected for facilitating the payment of goodwill amount to drivers is consideration in terms of Section 2(31) of CGST Act, 2017 and hence is liable for GST at 18% under heading 9985 vide clause (ii) of Sr. No. 23 of Notification No.11/2017-Central Tax (Rate), dated 28.06.2017-Sl.No.8.

The sixth question is whether the charges for cancelling the trip for any reason attract GST liability?

In this regard, we find that the applicant has submitted that cancellation charges collected from the passengers may be shared with the owners or drivers. We find that the activity of tolerating the cancellation by the applicant for a consideration is supply of service by virtue of clause (e) of para 5 of Schedule II of CGST Act, 2017 and attracts GST at 18 %.

The seventh question is whether the charges for insurance come under composite supply?

In this regard, we observe, from the terms and conditions that passengers are covered under appropriate insurance against accidents, that the passenger has to opt and give his/her specific consent for the insurance coverage, at the time of booking the ride/trip. This issue has already been discussed at, para 5.4 supra, and observed that its optional on the part of passenger to avail insurance on the trip and the same will not fall under composite supply.

The last question is If the principal supplier / applicant collects GST, say at 5% along with fare from passengers (as mentioned in the Table submitted by the applicant), does it amount compliance of the GST Rules?

As discussed above, 5% GST is only applicable on basic fare. The applicant has to pay GST at 18% on other incomes as discussed in the proceeding paras

Conclusion:

The AAR ruled the as below:

1. Do the various supplies (of the applicant, the vehicle owner, the driver and the associate partner together) qualify as Composite supply?

No, it’s not a composite supply.

2. Do the pick-up charges paid to the owner / driver fall under GST rate of 5%?

Yes, the pick-up service is incidental to the main service of transportation of passengers by radio taxi and hence the pick-up charges form part of the service of transportation of passengers by a radio taxi and hence the applicant is liable to pay GST @ 5%, on such pick-up charges.

3. The Associate Partner renders services to the passengers and to the drivers/ vehicle owners directly, and in that case does any supply of service exist between the applicant /aggregator and the Associate partner, and if yes, what is the rate at which GST has to be collected and remitted?

18 % by associate partners in case the associate partner is registered under GST. Where the associate partners are not registered under GST, no GST is leviable on the amount remitted to the associate partner.

4. Does the amount received from drivers/ owners towards bidding get covered in the 5 % GST or should it be separately charged at 18%?

It should be paid at 18%.

5. Does the goodwill bonus being paid by passenger to the driver and on which the applicant collects the service charges, attract GST and if so at what rate?

Yes at 18 %.

6. Do the charges for cancelling the trip for any reason attract GST liability?

Yes at 18 %.

7. Do the charges for insurance come under composite supply?

8. If the principal supplier / applicant collects GST, say at 5% along with fare from passengers (as mentioned in the Table submitted by the applicant), does it amount compliance of the GST Rules?