ADVANCE RULING ON THE TRANSPORTATION SERVICES PROVIDED THROUGH ELECTRONIC COMMERCE OPERATOR (ECO)UNDER SUBSCRIPTION MODEL
Business Model of a Transportation Company like Rapido:
Commission based Business model: It involves earning revenue by taking a percentage of fare charged for each ride booked through its platform.
In this model the platform act as an intermediary between the service providers (Driver) and the passengers.
The platform takes the ownership of the supply of service and would be responsible for any dispute between the parties.
The platform arranges the collection of consideration from the passengers at the end of the ride and subsequently settles the same with the driver.
2. Subscription based Business model: It involves earning revenue via subscription fee.
In this model the service provider register itself via subscription as an independent service provider and the platform doesn’t act as an intermediary between the parties.
The platform doesn’t take any ownership of the supply provided to the passengers thus not responsible for any dispute between the parties.
The platform doesn’t propose to collect any money from the passengers payable to the driver. The consideration is directly paid to the driver by the passenger.
Background:
The applicant, involved in transportation services, proposes to introduce application services to independent four wheelers cab service provider on a subscription basis. The cab service provider would create a business account on the application enabling them to use it as a discovery platform to connect with the potential end user.
The applicant believes that the cab service providers retain full ownership of the supply. As such, any disputes or issues arising between the service providers and the passengers will not involve the applicant as he is not involved in the said supply.
With this model they just meant to connect a supplier with a recipient where the recipient has the liberty to bargain the fare charged by the independent supplier for the ride.
Therefore, the taxable supplies are made by the platform’s subscribers, making them the suppliers, not the applicant. Therefore, the liability to pay tax rests under section 9(1) rest with the respective suppliers, not the applicant under section 9(5).
Analysis of Law:
Definition of ECO: ECO is one who own, operates or manages digital or electronic facility or platform for electronic commerce i.e. for the supply of goods or services or both, including digital products or electronic network. In this instant case the applicant owns digital platform (Rapido App) for supply of services. Thus, the applicant fits into the definition and qualifies to be an ECO.
Charge u/s 9(5): The said stipulates that the ECO will be liable to pay tax as a supplier following the said conditions that:
The supply of specified services notified by the govt. should be intra state supplies &,
The supply of such service shall be through ECO.
Services notified by the Govt.: Such specified services notified by the govt. includes “services by way of transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle;”
Motor cab means vehicle constructed to carry not more than six passengers excluding driver. Therefore, the four-wheeler cab service provider fits into the definition of motor cab.
Is the service provided under the subscription model considered to be supplied through an E-commerce Operator (ECO)?: The word “through” gives the meaning that the service was provided by means of/by agency of/from the beginning to the end/during the entire periodby the ECO.
Although the applicant is of the view that they are not involved in the supply, they do have admitted that:
The pickup location of the passenger is shared by the app.
They notify the passenger when the driver reaches the pickup location.
After the driver offers fare, the passenger is at the full liberty to negotiate the price via app.
They notify the passenger at the beginning and end of the ride.
They display the route of the passenger during the ride.
On completion of ride the app displays the fare initially agreed.
This proves that the applicant does have an involvement in the supply of service from the beginning to the end, thus satisfying that the services are supplied through electronic commerce operator.
Conclusion:
In the Advance Ruling of M/S. ROPPEN TRANSPORTATION SERVICES PVT. LTD (referred as applicant) who was of the view that they do not have any involvement in the supply of service under subscription basis and thus not liable to pay tax u/s 9(5) of CGST Act, 2017 is incorrect as per the Advance Ruling Authority.
Considering the above-mentioned facts the Authority of Advance Ruling of Karnataka denying the view point of the applicant ruled in favor of the revenue that applicant satisfies the definition of ECO and the nature of supply of service u/s 9(5) of CGST Act, 2017. Therefore, the applicant is liable to pay GST on the supply of services provided by the independent four wheelers cab service provider under subscription basis with the applicable GST rate of 18%.
SW Point of View:Despite the subscription model aiming for supplier independence, the platform’s active role in the ride process could still trigger ECO liability under section 9(5). The applicant should revisit the business model aiming to limit the platform involvement in order to avoid GST implications while acknowledging the advance ruling or Karnataka jurisdiction.
