Introduction
The Goods and Services Tax (GST) regime offers certain exemptions for specific services, one of which pertains to income earned from renting out vehicles to Goods Transport Agencies (GTAs). This article clarifies the non-taxability of lorry hire income under GST, backed by relevant legal provisions, notifications, and case law.
This article clarifies the non-taxability of lorry hire income under GST, backed by relevant legal provisions, notifications, and case law.
GST Exemption for Renting Vehicles to Goods Transport Agencies (GTAs)
Under GST, services provided by way of hiring a motor vehicle to a Goods Transport Agency (GTA) are exempt from tax, as per Entry No. 22 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017. This exemption is applicable to businesses providing lorries on hire to GTAs for transporting goods. According to this notification, the rental income earned from such services falls under a NIL-rated (exempt) category under GST.
Key Legal Provisions
Notification No. 12/2017 - Central Tax (Rate)
This notification specifies that services rendered by way of hiring motor vehicles to a GTA are exempt from GST.
The rental income generated from leasing lorries to GTAs for the purpose of goods transportation is thus exempt from GST, as long as the service is provided to a registered GTA.
Nature of the Transaction
The renting of vehicles to a GTA is treated as a supply of service under GST law, not a sale of goods. This service, according to the provisions of Notification No. 12/2017, is classified as NIL-rated.
Exemption from Double Taxation
By exempting the rental income from GST, the law ensures that the GTA only pays tax on its transport services, not on the vehicle rental. This distinction avoids double taxation for the same transportation activity.
Supporting Case Law and Rulings
Several case laws and rulings further substantiate the non-taxability of lorry hire income under GST:
1. W.P. No. 36089 of 2024
- Court: High Court of Judicature at Madras
- Date: 27th November 2024
- Summary: The petitioner argued that lorry hire income from renting vehicles to a GTA is exempt from GST based on Notification No. 12/2017, and the court upheld this position.
2. AAAR Maharashtra (2020) 120 taxmann.com.9
- Ruling: The Appellate Authority for Advance Ruling (AAAR), Maharashtra, confirmed that renting transport vehicles to a GTA is exempt from GST as per Notification No. 12/2017-Central Tax (Rate).
3. AAR Karnataka (2020) 113 taxmann.com 288
- Ruling: The Authority for Advance Ruling (AAR), Karnataka, clarified that renting vehicles to a GTA is separate from the taxable services provided by the GTA, meaning the rental income is not subject to GST.
"Extracts of the order in W.P. No. 36089 of 2024, issued by the Hon'ble High Court of Judicature at Madras:"
1. Petitioner's Explanation on the Nature of the Transaction
"The nature of transaction involved in this case is supply of service by way of renting of vehicles on hire, a means of transportation of goods to a major player M/s Zinc Foods (P) Ltd., who provides GTA services falling under tariff heading 9966 or 9973, which is NIL rated as per Notification No. 12/2017."
2. Reference from Notification No. 12/2017
"Services by way of giving on hire to a goods transport agency, a means of transportation of goods" are NIL-rated according to Notification No. 12/2017-Central Tax (Rate), confirming the exemption of lorry hire income from GST.
3. Clarification from AAAR Maharashtra
"The Appellant is simply hiring out their transport vehicles to M/s POSCO ISDC Pvt. Ltd., for consideration. AAAR, therefore, held that the services provided by the applicant would be classified under Heading 9966 of Notification No. 11/2017-CT (Rate), dated 28.06.2017, bearing the description 'rental services of transport vehicles.'"
4. Position from AAR Karnataka
"The services provided as a GTA are different from the services provided by way of giving vehicles on hire to another GTA and hence are independent of each other so far as tax treatment is concerned."
5. Petitioner's Argument on Transport Income
"It is further stated that the sum of Rs. 52,24,347/- is related to transport income which is not liable to GST. Such transport income is received on lorry hire charges, which is an exempt service under Tariff Heading 9966 or 9973 of chapter 99 of the GST Act."
Conclusion
The rulings and provisions under Notification No. 12/2017-Central Tax (Rate) make it clear that rental income derived from hiring vehicles to a GTA is exempt from GST. The key points are:
1. Renting vehicles to a GTA falls under a NIL-rated category.
2. The rental service is distinct from the transport services provided by the GTA, which are taxable under the reverse charge mechanism (RCM).
3. This exemption prevents double taxation and ensures that only the transport services provided by the GTA are taxed, not the rental income.
Thus, businesses engaged in providing lorries on hire to GTAs can confidently claim that such income is exempt from GST, in line with the legal provisions and case law cited.
Final Note
It is advisable for business owners and tax professionals to stay updated with the latest rulings and consult with experts to ensure full compliance with GST regulations and take advantage of available exemptions.
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