The Authority for Advance Rulings (AAR), Karnataka in the case of M/S. ROPPEN TRANSPORTATION SERVICES PVT. LTD. vide KAR ADRG 36/2024 dated 24.07.2024, has ruled 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. Even though being provided through independent four-wheeler service providers, will attract GST. 

This ruling clarifies the applicant’s obligations under the CGST Act, reinforcing the scope of ECO responsibilities and tax liabilities in the context of passenger transportation services facilitated through digital platforms.

Facts of the Case:-  The applicant  are engaged in the business of providing technology based services to their end users for booking two-wheelers and three-wheeler passenger transport services offered by third party drivers by means of the company website and its mobile app platform “Rapido”. The applicant proposes to introduce computer/mobile application services to independent four-wheeler cab service providers on subscription basis, as a discovery platform to enable them to connect with potential end-users (also referred to as passengers, who require the services of such third party drivers on its platform. The applicant also proposes to introduce pay per use ride monitoring fee, which is an optional service provided to the passengers, to ensure the passenger’s safety during the ride that the passenger avails from the four-wheeler cab service providers.

Further, in their proposed model, the independent four wheeler cab service provider shall become a subscriber to the app and the relationship between the members and the passenger would be of supplier and recipient and any monetary consideration involved between them is purely privy to their contract and the applicant in no way connected with such contract; If there is any dispute between the members registered on the App and the passengers, it is purely between them, and the applicant would not be responsible; the App, with a commission free monetization model, is a service provider’s hub wherein they have absolute ownership of their supply, and the applicant has no rights or say or control over the supply and there is no involvement of the applicant in the supply of services from the members registered on the App as well as arranging for collection of any consideration or any other form of agreed means of payment from the passengers to the registered members.

Issue:- 

• Whether the Applicant satisfies the definition of an e-commerce operator and the nature of supply as conceptualized in Section 9 (5) of CGST Act, 2017 r/w notification No 17/2017 dated 28.06.2017
• Whether the supply by the independent four-wheeler cab service provider (person who has subscribed to Rapido’s app) to his passengers amounts to supply by the Applicant
• Whether the Applicant is liable to pay GST on the supply of services provided by the independent four-wheeler cab service provider to his passengers on the Applicant’s app platform
• What is the rate at which GST shall be collected on the ride monitoring fee and the SAC code that shall be applicable
• Whether the Applicant is liable to pay GST on the supply of services provided by the independent three/two-wheeler cab service provider to his passengers on the Applicant’s app platform.

Contentions of the Applicant:-

• Issue -1 The applicant contends that they do not qualify as an e-commerce operator under Section 9(5) because their role is limited to providing a discovery platform for connecting passengers with independent cab drivers. They do not control, monitor, or collect fares for the rides, which are directly settled between the passengers and drivers.  The definition of an e-commerce operator involves the facilitation of supply through an electronic platform, including the collection of consideration.
• Issue – 2 The applicant emphasizes that the supply of transport services is made directly by the cab service providers to the passengers. The applicant merely provides a platform for connecting the two parties without being involved in the actual supply of services or the collection of consideration. If the applicant's role is restricted to facilitating connections without participating in the supply transaction, the supply by the cab providers should not be considered as supply by the applicant.
• Issue 3 The applicant argues that they are not liable to pay GST on the transport services provided by the cab drivers because the drivers independently provide these services, and the applicant's involvement is limited to offering a discovery platform. Under Section 9(5), liability to pay GST is on the e-commerce operator only if the services are supplied through them. Given the applicant's minimal involvement in the actual service provision, the liability for GST on transport services should fall on the cab drivers, not the applicant.
• Issue 4 The applicant proposes to charge a ride monitoring fee, which is an optional service ensuring passenger safety. They suggest that this fee should be subject to GST at 18%, separate from the transport services. 
• Issue 5 Similar to their stance on four-wheeler services, the applicant claims no liability for GST on services provided by three/two-wheeler drivers, as their role remains confined to facilitating connections. 

Observation of AAR:- The AAR, Karnataka analysed the definition of “electronic commerce” and “electronic commerce operator” (ECO) u/s 2(44) and 2(45) of the CGST Act, and found that Section 9(5) of the CGST Act states that ECOs are liable to pay tax on specified services.

• The applicant’s platform qualifies as an ECO because it facilitates the supply of services via a digital network. Notification No. 17/2017 specifies that transportation services by motorcabs are to be taxed under Section 9(5).
• The app facilitates fare negotiation, shares passenger locations with drivers, and tracks ride details, indicating that the service is supplied through the ECO. The actual fare paid by passengers to drivers is not known to the app, but this does not affect the ECO’s tax liability.
•  “Pay-per-use” Safety Features include number masking, face recognition, route deviation alerts, long stop alerts, ride sharing details, SOS buttons, and IVR calls post-ride for night rides, Classified under SAC 9985 (security consulting services), attracting 18% GST.

Rulings:- 

• Classified under SAC 9985 (security consulting services), attracting 18% GST
• Services provided by four-wheeler cab drivers through the app are taxable under Section 9(5) of the CGST Act.
• The applicant must pay GST on these services, including ride monitoring fees.
• Three-wheeler and two-wheeler services provided through the app are also taxable, with the applicant liable for GST.