Delhi High Court Upholds Notifications Levying GST On Auto Rikshaw, Bus Services Booked Through Apps Like Uber, Ola

The Delhi High Court on Wednesday upheld the validity of notifications issued by the Union of India levying goods and services tax (GST) on auto rickshaw and bus services booked through e-commerce platforms like Ola and Uber.

A division bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora observed that the notifications do not create an unreasonable classification on the basis of the “mode of booking” availed by the consumers and are not violative of Article 14 and 21 of the Constitution of India.

The court dismissed the petitions moved by Uber India, Pragatisheel Auto Rickshaw Driver Union and IBIBO Group Private Limited along with Make My Trip (India) Private Limited, challenging two notifications issued by Union of India on November 18, 2021.

The notifications had modified the earlier notification of 2017 which provided for an unconditional exemption from payment of GST in cases of supply of services by auto rickshaws and transportation of passengers by stage carriage other than air-conditioned stage carriage. 

The exemption of tax on the fare was available to individual auto-rickshaw driver, bus operator and the Electronic Commerce Operator (ECO) irrespective of the mode of booking availed by the consumer.

However, the parent notification of 2017 was amended by the impugned notifications withdrawing the exemption to ECO. The notifications came into effect from January 01 last year from which the fare has become eligible to tax in respect to a booking made by a consumer through electronic platform of an ECO for an auto-rickshaw ride or a bus ride.

The issue before the court was whether the notifications arbitrarily create a classification between the ECOs and individual service providers solely based on the “mode of booking” availed by the consumer for availing the service and thus, discriminate against the ECOs by denying them the benefit of exemption available to individual service providers under the parent notification.

The petitioners contended that the fare charged by Uber and IBIBO Group Private Limited from the consumer who is booking the ride through the ECO should continue to remain exempted from levy of GST as similar to the case where booking is made directly with the individual auto-driver or bus operator. The petitioners thus sought parity of rates of fare with the individual auto-rickshaw drivers and bus operators.

Rejecting the contention, the court observed that the ECOs were seeking “equality amongst unequals” by seeking parity with the individual service provider.

“In the opinion of this Court, this distinguishing fact would equally apply to auto-rickshaw drivers who are street hailed. It is an admitted fact that ECO charges commission to the auto-rickshaw drivers for providing the digital platform to get connected with the potential consumer, which is in addition to the conveyance charges the ECO collects from the consumers. The auto rickshaw driver who is street hailed does not have to pay this commission to the ECO. The exemption from GST available to a street hailed auto rickshaw driver therefore provides the individual auto rickshaw driver the capacity to economically compete with the services provided by the ECO and have an option to operate independently,” the court said.

The court also observed that though the quality of physical ride in an auto rickshaw may remain the same even if it is street hailed, the experience of doorstep convenience and Uber’s assurance of assuming the safety for the ride makes the experience different for the consumer.

Therefore, the court ruled that the consumer, who uses Uber App for an auto rickshaw ride, and the consumer, who uses a street hailed auto rickshaw, fall under a different category.

“Therefore, this Court is of the opinion that the classification of the ECOs like Petitioner 1 and 3, as a class of service providers, which are separate and distinct from the individual supplier is, therefore, statutorily classified and recognised in the provisions of the Act of 2017 and more specifically in Sections 9(5) and 52 of the Act of 2017,” the court said.

Noting that the intent of section 9(5) and 11 of Central Goods and Service Tax Act, 2017 is to plug leaks in collection of GST, the bench said that the Union of India is empowered under the provision to consolidate the liability to collect and pay tax for the services supplied through ECO.

“The object of the parent Notification, as it stands today post amendment, with respect to entries pertaining to auto rickshaws and non-air- conditioned stage carriage is now limited to exempt the individual service providers only and this is in conformity with Section 11 of the Act of 2017 which permits the Respondent to grant an exemption absolutely or conditionally,” the court said.

The court thus held that the ECOs are a distinct class and the Union of India is well within its jurisdiction to exclude them from exemption, adding that there is no vested right in the ECOs to claim the continuation of exemption.

“Therefore, in the opinion of this Court, the classification between ECO and the individual service provider has a rational nexus with the object sought to be achieved by the Act of 2017,” the court said.

Noting that the ECOs provide a bundle of services and partake a charge or commission from both the consumers and the individual supplier, the bench said:

“Therefore, for all purposes, the ECOs are an independent supplier of service to the consumer. And, the service provided by the individual supplier is only one facet of the bundle of services assured by the ECOs to the consumer booking through it. Hence, the impugned Notifications do not result in discrimination on the basis of the mode of booking.”

Title: UBER INDIA SYSTEMS PRIVATE LIMITED v. UNION OF INDIA & ANR and other connected matters

Citation: 2023 LiveLaw (Del) 307

Click Here To Read Order