The Appellate Authority for Advance Rulings, Odisha in the case of M/S. TRUE SOLAR PRIVATE LIMITED vide Order No. 03/Odisha-AAAR/Appeal/2024-25 dated 18.12.2024, has ruled that the leasing of Electric Vehicles without an operator is classified as a financial lease, not an operating lease. Further, tax to be paid at the same rate applicable to the supply of similar goods with transfer of title i.e. @18%.

Facts of the Case: The applicant, M/s. True Solar Pvt. Ltd., contends that the leasing of EVs without an operator falls under Heading 9973 i.e. Leasing or rental services without operator and should be taxed accordingly.

The Applicant argued that their service falls within Heading 9973, Sl. No. 17 (iii) or (viia) because the lease agreement transfers the right to use the EVs for a period. Further, the applicant  relied upon the Supreme Court decision in BSNL case which laid down the attributes to consider a transaction as having the transfer of the right to use the goods and submitted that in its case, all the attributes have been satisfied and hence its case is specifically covered under Sl No. 17 (iii) of rate notification as amended. Also, If not covered under Sl. No. 17 (iii), they argue for Sl. No. 17 (viia), where GST is charged at the rate applicable to the like goods.

Decision of AAR, Odisha:  The AAR Odisha members have differing views:

SGST Member’s View: Classifies it under Heading 9971 (“Financial and related services”) under Sl. No. 15(ii) of the rate notification.

CGST Member’s View: Also classifies it under Heading 9971 but under Sl. No. 15(vii), applying an 18% GST rate (CGST 9% + SGST 9%).

AAAR Rulings: The AAAR, Odisha classifies lease agreement as a financial lease rather than an operating lease based on the following considerations:

1. The lease period is 48 months, covering a major part of the economic life of the EVs. The lease payments over this term appear to cover the full value of the EVs, indicating that the agreement effectively transfers ownership benefits to the lessee.
2. The lessee is responsible for all maintenance, repairs, insurance, and legal compliance costs (e.g., registration, road permit, fitness certificate, insurance, taxes, and other operational requirements)
3. The lessee has exclusive control and possession of the EVs during the lease term. The lessor cannot use or transfer the EVs to any other party during the agreement.
4. The agreement provides the lessee with the option to purchase the EVs after the lease expires, a feature typically found in financial leases rather than operating leases.

The AAAR stated that all the attributes laid down by the Hon’ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India (2006) as been met to constitute the same as “transfer of the right to use goods”. Applying the principles set forth in the said judgment, along with the settled legal position, to the facts at hand, it is evident that the agreement between the appellant and the lessee clearly demonstrates the intention to transfer the right to use the goods (e-bikes). The terms of the agreement unequivocally establish that the appellant (lessor) has legally and effectively transferred the right to use the goods to the lessee as per the agreed contractual conditions.

Consequently, the present transaction squarely falls within the ambit of Entry Sl. No. 15(ii) of the Rate Notification referred to above i.e. transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration and the rate of tax will be the same rate of tax as applicable on supply of like goods involving transfer of title in goods.