TMI Blog2022 (4) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... f some of the following clauses of the agreement reveals that the ownership of the leased equipment does not pass on to the Lessee and remains with the Applicant, as is the dicta of an Operating Lease - Operational leasing is a taxable supply of service under the GST Act. From the flow chart indicating the leasing supplies, it is seen that presently, the applicant arrives at the EMI considering the entire value including the on road components charged on them and the lease rental is fixed on monthly basis. Valuation of supply - whether the 'On-road Component' raised through a Debit note to be considered as additional services in which the applicant is a 'Pure agent' or should form part of the value of supply of 'Operational lease' undertaken by them? - HELD THAT:- As per Section 15, the value of a supply, where the supplier and the recipient are not related and the price is the sole consideration, is the transaction value, which is the price actually paid or payable for the said supply. In the case at hand, the applicant purchases the vehicle identified by the lessee from the dealer also identified by the lessee and supplies the vehicle as 'Operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent' cannot be considered as additional charges or the applicant can't be held as acting as a Pure agent' in respect of supply of the 'On-road Component'. Additional payments made by the Applicant towards Motor Vehicle Registration fee, Motor Vehicle life Tax, RTO charges etc., for getting the vehicle to use on the Road, which are recovered from the Lessee, forms part of the supply of Leasing services and therefore should form part of the taxable supply. - TN/14/ARA/2022 - - - Dated:- 31-3-2022 - SHRI T.G. VENKATESH, I.R.S., AND TMT K. LATHA., M.SC., (AGRI), MEMBER Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount are contained in the supplemental agreement(s). Though the Assets to be leased out by the applicant are billed by the vehicle dealer in the name of the applicant, the lessee shall be solely responsible for taking/obtaining delivery and possession of the same from the dealer in terms of the Master lease Agreement and Supplemental Lease Agreement entered with the applicant. In case where the leased asset happens to be vehicles requiring registration, since the Lessee is the actual user of the vehicle and the person who will be in control and possession of the same and at whose request the vehicle has been purchased by the applicant/Lessor for the purpose of providing it on lease, to comply with the provisions of the Motor Vehicles Act, the vehicle is allowed to be registered in the name of the Lessee. The registration certificate pertaining to the vehicle will bear an endorsement of the Applicant's name as Lessor , which will continue until the termination of lease or its early determination. It's the responsibility of the supplying/selling dealer to deliver the vehicle/s after proper registration and hence the supplying dealer demand further payments towards Motor Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments made by them towards such additional services viz., registration Motor Vehicle life tax RTO charges, insurance premium etc., and thereafter get it reimbursed from the Lessee (recipient) on actual basis. Since the above said charges are passed on to the lessee (recipient) by them as such, these expenditure or costs incurred by them on behalf of the Lessee are to be treated as services that are made by them as a pure agent of the Lessee (recipient) of the supply and therefore shall not form part of the value of the supply. They submit that these additional payments are statutory requirements, receipted and issued in the name of the Lessee/recipient, including the GST portion, if any, applicable in any of these payments. Thus, when the Applicant/Lessor is acting only as a pure agent of the Lessee/Recipient for these payments/services rendered in respect of payment of the above charges to the vehicle dealer (third party) and getting it reimbursed from the lessee (recipient), it should be allowed to exclude these payments from GST chargeability. If the applicant is allowed to act as Pure Agent for these road tax and other incidental payments pertaining to the leased a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked to submit the following documents:- 1. A write up on the entire transaction of leasing 2. Flowchart indicating the time of supply of goods and services separately- being followed presently and proposed to be done 3. Break-up and calculation of monthly EMI/Rentals 4. Details of title of goods and time of change of title 5. Master lease agreement 3.2 In the written submissions furnished during the hearing, the applicant has re-iterated their submissions on their business activities relevant to the ruling sought and on the questions seeking ruling, they have inter-alia stated as follows:- (I) Can the applicant be construed as a pure agent falling within the Explanation to Rule 33 of the CGST Rules 2017 and TNGST Rules, 2017. The applicant is of the view that to act as the Pure Agent of the Lessee, it satisfies the 3 conditions laid down under Rule-33, as answered below:- (i) The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient; Ans: The applicant, as Lessor propose to amortize the value of the vehicle alone and consider the other charges, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice as per the GST law, the GST rate to be applied on the lease rentals is the rate that is applicable on the supply of Goods which forms part of the lease. The minimum GST rate for vehicles is 28% and adding the applicable Cess ranging from 1% to 22%, the total GST + Cess payable on the monthly lease rentals extends upto 50%. Applying the same GST and Cess rate applicable to goods on such additional supplies made by the Lessor to the Lessee, viz., road tax, insurance, etc., some of which have already suffered GST, certainly burdens the Lessee. The applicant humbly submits that in case the learned authorities are not convinced on applying the pure agent concept for the subject leasing transactions, should consider treating such additional supplies separately and allow the applicant to charge GST as applicable to general services, which is currently 18% and oblige. 4.1 The applicant vide their letter dated 5th January 2022 submitted the following in pursuance of the Personal Hearing held on 28.12.2021,- Overview about Leasing transaction Copy of Master Lease Agreement dated 11th Day of May 2005 Flow Chart of EMI working and supporting documents for lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Invoice No. LS33212208000004 dated 24.08.2021 4.2 In the overview they had stated that,- Under the leasing arrangement, the applicant as Lessor/Owner permits the use of an asset for agreed period (usually 48 to 60 months) for consideration, which is called lease rentals. Common feature in any lease transaction are two important aspects:- (a) The Lessee/customer pays a certain sum by way of rentals every month as per lease term and (b) The Lessee /customer is responsible for the vehicle in possession and usage. The leased assets being predominantly passenger cars are taken on lease by the corporate companies which are intended for their executives and the choice of the vehicle is given to the executives based on their entitlement. Once the car is identified by the executive, the corporate company, as Lessee, enters into the lease agreement for the identified car with the applicant/SFL as Lessor. The applicant, being the title holder, needs protection under the lease agreement against any loss or liability arising out of the usage of the asset. Therefore, the vehicle to be leased out by the applicant will be billed by the vehicle dealer in the applicant&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor vehicle life tax RTO charges, accessories, fastag, TCS etc., which are released by the applicant. The applicant applies the same GST rate as applicable to Goods on these additional service supplies also, viz., Motor vehicle tax, insurance etc., some of which have already suffered GST, and remits the same to the government. Applying the same minimum GST rate for vehicles i.e., 28% and adding the applicable Cess ranging from 1% to 22%, the total GST + Cess payable on the monthly lease rentals extends upto 50% on such additional supplies made by the applicant Lessor to the Lessee, viz., road tax, insurance, etc., certainly burdens the Lessee. Hence the applicant/SFL has filed the above application for advance ruling (AAR) for treating these additional supplies as one made by the applicant/SFL as a pure agent . 5.1 The State Jurisdictional Authority, Assistant Commissioner(ST), Annasalai Assessment Circle, who has the administrative Jurisdiction over the applicant vide letter RC.No. 1400/2021/A3 dated 27.11.2021 has stated as follows:- Rule 33 of the TNGST Rules, 2017 read with CSGST Rules 2017 explains the concept of Pure Agent and Tvl. Sundaram Finance Limited, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above charges do not form part of the taxable supply? The above question relates to valuation of the supply made by the supplier of service and therefore is admissible under the statutory provisions governing Advance Ruling. Accordingly, the application is taken up for consideration on merits. 7.1 The applicant has stated that the Lessee/Customer approaches them with a request to extend leasing facility upon certain terms and conditions; the Lessee is the one who decides the make, model and class of assets required for his uses, including identification of the supplying dealer and approaches them for extending lease facility; once the lease terms are agreed, they both enter into the required lease agreement; the legal ownership of the Asset rests with them and the Lessee holds the same as a mere bailee of the Lessor; though the assets to be leased out by the applicant are billed by the vehicle dealer in the name of the applicant, the Lessee shall be solely responsible for taking /obtaining delivery and possession of the same from the dealer in terms of the Master Lease agreement and supplemental lease agreement entered with them; the vehicle dealer (third party) raises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a name plate, serial number or a mark to identify the same as the exclusive and absolute property of the Lessor. The Lessee shall ensure that the said name plate, serial number or mark are not removed/obliterated/defaced. Clause No. 8: The Lessee acknowledge, confirms and declares that it holds Equipment as a mere bailee of the Lessor and that it shall not have any proprietary right, title, or interest in the equipment or any part thereof and shall at all times, protect and defend as bailee/ licencee of the equipment the Lessor's absolute and permanent ownership right and title. The Lessee further agrees and covenants that he shall not claim any benefits under the Tax Laws associated with the ownership of the equipment such as depreciation, investment allowances etc., Clause 13 (b): The Lessor shall be entitled to claim, receive, recover and retain to the exclusion of the Lessee and without prejudice to and/or divesting itself of its absolute proprietary right, title and interest in the equipment and/or in the salvage thereof, all moneys realizable in respect of the said claims. Clause 15. The Lessee shall not make or cause to be make any alteration or addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as Pure agent' in respect of the 'On-road component' paid by them, in as much as the vehicle is registered in the name of the lessee as per the terms and conditions agreed upon. It is their stand that, if such a scenario is permitted the On-road component, currently considered as part of the entire value of the leasing service, amortised and EMI fixed will be reworked excluding the 'On-road Component'. It is their further contention that the 'On-road Components', wherever required are subjected to GST and therefore when these components form part of the leasing services, it is again taxed. 8.1 Section 15 of the GST Act, provides the statutory provisions relating to Valuation of Supply of Goods and Services which is reproduced as under:- (1): The value of supply of goods or services or both shall be transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include- (a) any taxes, duties, cesses, fees and charges levied unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 33. Value of supply of services in case of pure agent.- Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,- (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation . - For the purposes of this rule, the expression pure agent means a person who- (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of registration fees, Road Tax, RTO charges and Insurance Premium (On-road components) to the dealer is the responsibility of the applicant and not lessee as the vehicle is owned by the applicant and not the lessee. The applicant is not paying these charges on behalf of the lessee to the dealer but is paying the charges to make the vehicle usable on road following the provisions of Motor Vehicle Act and related statutory provisions etc before leasing such vehicles to the lessee for operations. 8.5 Further, as per the Explanation to Rule 33 above, 'Pure agent' is a person, who has a contractual agreement with the recipient of supply to act as his agent; neither intends to or holds any title to the services supplied as pure agent; does not use for his own interest such services so procured; receives only the actual amount incurred in addition to the amount received for supply on his own account. In the instant case, the applicant do not have any contractual agreement for separately procuring the 'On-road components'; the supply is leasing of the identified vehicle for operational purposes and the ownership of the vehicle and as owner, it is the responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistration fees, insurance, etc are mandatory charges for the vehicle to be put to use. Though the applicant allows the vehicle to be registered in the name of the lessee with the endorsement of the lease, the 'On-road components' are procured on own account of the applicant, enabling the vehicle to be used on road and subsequent Lease. Therefore, the 'On-road Components' having the nature of incidental expenses in relation to leasing of vehicles cannot be considered as procured in the capacity of 'Pure Agent' by the applicant and are includible in the value of supply, to be considered as Transaction Value' for the purpose of Tax and taxable @ 28% along with applicable cess. 10. In view of the above, we rule as under; RULING 1. The portion of the certain additional services viz,, payment of road tax/registration fees, insurance premium, etc., rendered by the applicant in the course of its Leasing of the vehicle/s to the Lessee and recovered in monthly instalments do not fall under the category of services of a pure agent and therefore it is ruled that they are not an 'Pure Agent' under Explanation to the Rule 33 of CGST/TNGST Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X
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