QUESTION

XYZ, is a Non-Banking Finance Company and is in the business of leasing of Passenger motor vehicles. He purchases two type of cars for his leasing business: 1) Sedan cars (paid GST @ 28%) 2) Electric cars (paid GST @ 5%). He gives these cars (without operator) to ABC, on a monthly lease rental basis for three years. All the operating expenses like repair & maintenance, insurance, fuel charges etc. is borne by the Lessee i.e. ABC. XYZ does not transfer ownership rights to the Lessee but transfers only right to use the car. After the expiry of the lease term, the car will be surrendered by ABC to XYZ in working condition. Query: 1. Whether this service will be considered as rental service and charge GST @ 18% on the monthly lease charges or it will be considered as normal sale and GST will be charged accordingly?

ANSWER

FACTS OF THE CASE:

Cars are leased out on a monthly rental for 3 years wherein the right to use the asset has been transferred without the transfer of ownership of the asset. At the end of the lease term the possession of the car will be handed back to the lessor.

LAW APPLICABLE:

Clause (b) of Para 1 to Schedule II declares as follows;

" any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services "

INTERPRETATION:

Schedule II declares certain activities or transactions which shall be treated as a supply of goods/service. Para 1(b) of this schedule specifies that a transaction wherein right in the goods is transferred without the transfer of title in such goods shall be treated as a supply of service

CONCLUSION:

In light of the provisions mentioned above, this transaction is a supply of service. HSN 9973. Rate of sedan car : 28%. Rate of Electric car : 5%.

Assumed that : Transaction is not " leasing of motor vehicles purchased and leased prior to 1st July 2017" (Reply dt. 20/04/2022)