Rapido liable to pay GST for cab services: Karnataka AAR
Jul 30, 2024
Synopsis
The Bengaluru-based company is evaluating challenging the ruling, which opens it up to previous tax dues. Rapido, which originally started as a bike taxi platform, had launched its four-wheeler cab services across cities such as Bengaluru, Delhi-NCR and Hyderabad on the subscription model.
The Karnataka Authority for Advance Rulings (AAR) has held that ride-hailing platform Rapido is liable to pay goods and services tax for its cab services, a ruling that potentially adds to the ambiguity over GST applicability on app-based mobility companies operating the subscription model.
Rapido submitted that it charges a subscription fee to its driver partners—as against charging them a commission—and does not make any revenue on the fare.
However, the AAR ruled that Rapido’s services, even though being provided through independent four-wheeler service providers, will attract GST. ET has seen a copy of the order dated July 24.
The ruling opens up Rapido—which just raised $120 million in funding, turning it into a unicorn—to previous tax dues on its cab services, but people aware of the matter said the Bengaluru-based company is evaluating appealing the AAR’s ruling.
“The applicant (Rapido’s parent company Roppen Transportation) is liable to pay GST on the supply of services provided by the independent four-wheeler cab service provider (person who has subscribed to applicant’s Rapido app) to his passengers on the applicant’s app platform, being an ecommerce operator, in terms of Section 9 (5) of the CGST Act 2017,” the order read.
Email queries sent to Rapido did not elicit a response. “While the ruling will apply restospectively an appeal can be filed against it,” said Pratik Jain, partner, PwC India.
The business model
Rapido, which originally started as a bike taxi platform, had launched its four-wheeler cab services across cities such as Bengaluru, Delhi-NCR and Hyderabad on the subscription model.
This was preceded by its Bengaluru-based rival Namma Yatri offering a subscription-based model to its driver partners. Namma Yatri, which runs on the government’s Open Network for Digital Commerce (ONDC), had received an AAR ruling in its favour allowing it to not pay GST.
To be clear, these platforms pay 5% GST on the fare for rides they facilitate through the commission model.
The 5% GST is applicable under Section 9 (5) of the Central GST (CGST) Act, which mandates ecommerce operators such as ride-hailing platforms, food-delivery companies as well as online retail marketplaces to collect and pay tax on behalf of the service providers listed on their apps. These include drivers, restaurants and e-marketplace sellers.
Under the subscription model, the ride-hailing platforms charge a per-day or per-week fee to driver partners to get discovered by customers looking to book a ride. In its submissions to the Karnataka AAR, Rapido said that there is no revenue it makes from the passenger towards the ride.
In April, ET had reported that to avoid the tax arbitrage, larger platforms Ola and Uber had also rolled out the subscription-based models for their three-wheeler booking services.
Need for clarity
On July 15, ET reported that ride-hailing platforms such as Uber have approached the finance ministry, GST Council and the AAR seeking clarity on whether their business was liable to the indirect tax or not.
“The models being followed by most app-based passenger transportation service providers are similar and in that light, the earlier order in case of Juspay Technologies (Namma Yatri) seems in direct contrast with this order. What this order does is that it has created conflicting orders in the same space—including orders in favour of assessees and those against,” said Bipin Sapra, partner, EY.
“Accordingly, there is sufficient ambiguity in the way the advance ruling has been interpreted in the same jurisdiction, resulting in differential GST payments by the companies. A GST of 5% impacts the market dynamics given the thin operating margins of these app-based companies,” he added.
On companies rolling out subscription model to bypass the 5% GST, tax experts had earlier said that it could also lead to potential disputes between the operators and tax authorities with lack of clarity on whether a September 2023 advance tax ruling, which held that Namma Yatri need not collect and pay GST, would apply to other platforms as well.
"It's important to note that from combined reading of this AAR (ruling) and the one in case of Juspay Technologies, it would appear that while merely connecting the drivers with customers may not trigger the liability under Section 9 (5) the degree of involvement of platform before, during and post the ride would be the deciding factors. While the facts in both these cases appear to be different, it would be better if GST Council takes a comprehensive look at the issue and provides necessary clarification,” PwC India's Jain said.
[The Economic Times]
