GST on Equipment Leases

The Appellate Authority for Advance Rulings (AAAR), Odisha, in In Re: True Solar Private Limited (Order No. 03/Odisha-AAAR/Appeal/2024-25 dated 18.12.2024), held that the leasing of electric vehicles without an operator constituted a "transfer of the right to use goods" and that the GST rate applicable would be the same as that on the supply of "like goods." This ruling, having higher persuasive value, directly supports the application of the "like goods" principle to the leasing of vehicles without an operator, which is perfectly analogous to the Company's position regarding helicopters.

Further, in In Re: New Space India Limited (22 TAXLOK.COM 095 (AAR-Karnataka)), the AAR-Karnataka applied the "like goods" principle for the leasing of satellite transponders (classified under SAC 997319 – "Leasing or rental services concerning other machinery and equipments with or without operator"), resulting in a 5% IGST rate based on the rate applicable to the "like goods" (transponders). The legal analysis by Lakshmisri also supports the view that aircraft are goods and that leasing of aircraft for other than personal use should attract a 5% GST rate.

It is pertinent to address the Karnataka AAR ruling in Yulu Bikes Pvt. Ltd.. While an initial interpretation might suggest it supports classification under Heading 9973, Entry (viia), a closer examination of the ruling reveals that the AAR ultimately classified the renting of e-bikes and bicycles without an operator under SAC 9966 ("Rental Services of transport vehicles with or without operators") and found Sl. No. 17(viia) of Notification No. 11/2017-CT(R) not applicable to that specific case. The AAR reasoned that SAC 9966 was more specific for "transport vehicles" compared to the broader "machinery and equipment" or "other goods" generally covered under SAC 9973.

However, the Yulu Bikes case is distinguishable. Firstly, it dealt with e-bikes and bicycles, which are different in nature and scale from helicopters. Secondly, the critical argument of UNCPC alignment for aircraft under Service Code 7311 (leading to classification under SAC 997311 for "transport equipment" leasing without operator) was not a subject of consideration in the Yulu Bikes ruling. Therefore, for substantial capital goods like aircraft, especially in light of the UNCPC alignment specifically intended for such equipment, the reasoning for classification under SAC 9973, invoking Entry 17(iii) or 17(viia), remains more apposite and robust. Misrepresenting or misapplying a judicial precedent, even an AAR, can undermine the credibility of a submission; hence, this clarification is essential.

Additionally, a CBIC clarification, documented in a GST Council paper concerning amendments related to motor vehicles, explicitly states that leasing of motor vehicles without an operator (SAC 9973) attracts GST at the same rate as the supply of motor vehicles, directly endorsing the "like goods" principle for SAC 9973 concerning vehicles, a comparable class of transport equipment.

When goods are leased without an operator, the transaction is fundamentally a temporary transfer of the right to use those goods. This economic reality is akin to a temporary or phased acquisition of the utility of the goods, and thus, logically, it should attract the same rate of tax as applicable on the outright supply of the goods themselves. For helicopters, this rate is 5%.