UK AAR: GST Must be Charged on Mileage Basis When Using Motor Vehicle Rental Services

An order has been directed by the Uttarakhand Authority of Advance Ruling (AAR), according to the order, availing motor vehicle rental services, GST is subject to be paid on monthly rental, overnight charges, and fuel on a mileage basis.

The appellant, M/S Uttarakhand Public Financial Management Project, receives motor vehicle hire services from M/S Baba Tour & Travel and M/S Rajeshwari Travel with fuel charges.

Both service providers use two different methods to determine the leviable tax when submitting a claim bill for a particular month. M/S Baba Tour & Travel Services charge GST at 5% (2.5% SGST and 2.5% CGST) on the entire amount of the bill (monthly rental + night charges + fuel on a mileage basis), whereas M/S Rajeshwari Travel charges GST at 5% (2.5% SGST and 2.5% CGST) only on the monthly rent and no GST is levied on fuel charges.

The applicant expected the service provider to add GST to the entire bill (monthly rental, overnight charges, and fuel charges based on mileage) or only the monthly rental (excluding night charges and fuel according to mileage).

It was clear that Section 15 of the CGST Act, 2017 required that the value of supply include, among other things, any other amounts that the supplier is liable to pay about such supplies but which have been incurred by the recipient of the supply and are not included in the price paid or payable for the goods or services or both.

A Coram comprising Shri Anurag Mishra (Member) and Shri Rameshvar Meena (Member) made the observation that a motor vehicle cannot operate (run) without fuel and that it cannot move from one point to another without running, which prevents the provision of motor vehicle hire services. Running or operating the vehicle from one location to another is a crucial part of motor vehicle rental services.

Read Also: GST Impact on Cars and Spare Parts Industry in India

The AAR ruled that the service provider must add GST to the entire amount of the bill, which in this case includes the monthly rental charges plus night charges and fuel calculated as per mileage.