Eligibility of Input Tax Credit on Fuel Charges in Fleet Management Contracts: Analysis of AAR Chhattisgarh Ruling

Introduction

The Authority for Advance Ruling (AAR) in Chhattisgarh recently examined a critical issue concerning the taxation framework applicable to fuel expenses recovered under fleet management service agreements. The case of In re Vision Plus Security Control Limited presents significant insights into the treatment of petroleum product charges when billed separately as part of vehicle fleet operation services.

The ruling addresses the persistent confusion among service providers regarding whether fuel charges invoiced on a per-kilometer basis should attract Goods and Services Tax or continue under the pre-existing Value Added Tax regime. This determination carries substantial implications for businesses engaged in comprehensive fleet management operations, including vehicle maintenance, driver provisioning, insurance coverage, and fuel supply arrangements.

Background and Factual Matrix

Nature of Proposed Business Operations

Vision Plus Security Control Limited, holding GSTIN 22AAECJ8819P1Z1 with its head office situated at Building No. C-60, First Floor, Rajan Babu Road, Adarsh Nagar, North West Delhi, New Delhi-110033, approached the AAR seeking clarity on taxation matters related to their intended business model.

The applicant planned to undertake comprehensive fleet management operations for corporate clients, encompassing multiple service components. The proposed service delivery model included vehicle repair and maintenance activities, provision of qualified drivers, insurance coverage for fleet vehicles, and fuel supply charged on a kilometer-based calculation method.

Under the contemplated contractual arrangements, the company intended to purchase petroleum products—specifically petrol and diesel—in its own capacity, retain ownership of such fuel, and subsequently bill clients based on actual consumption measured per kilometer traveled. The fuel expenses would be invoiced separately and distinctly from other service charges related to maintenance, driver services, and insurance coverage.

Questions Submitted Before the Authority

The applicant submitted five interconnected questions seeking advance ruling on the following matters:

  1. Whether fuel charges for diesel and petrol, when invoiced separately on a per-kilometer calculation basis, should be categorized as supply of goods attracting VAT, or alternatively, whether GST would apply to such charges
  2. Whether the fuel element, when not combined with other service components and billed as a distinct line item, should receive independent tax treatment
  3. The appropriate classification methodology and applicable tax rate if GST were to be levied on such fuel charges
  4. Whether dual taxation under both GST and VAT frameworks could simultaneously apply to fuel charges
  5. The eligibility to claim input tax credit on VAT amounts paid during procurement of petrol and diesel

Applicant's Interpretation and Contentions

The service provider contended that although petroleum crude remains excluded from the GST framework under Section 9(2) of CGST Act and continues to attract VAT, the situation transforms when diesel forms part of a bundled service arrangement such as fleet management or transportation services billed on a per-kilometer basis. According to their interpretation, such transactions could potentially qualify as composite supply of services.

The applicant argued that when fuel is not directly sold but rather utilized in delivering an integrated service, GST may become applicable under SAC 9966 (covering renting of vehicles with operator) or SAC 9987 (pertaining to other support services), attracting either 18% or 5% tax rate depending upon whether input tax credit is claimed or not.

The primary objective behind seeking this advance ruling was to eliminate ambiguity, avoid potential misclassification of services, and prevent exposure to dual taxation scenarios.

Hearing Proceedings

Shri Mukesh Kumar Singla, appearing as the authorized representative of Vision Plus Security Control Limited, participated in the virtual hearing conducted on 25-08-2025. During the proceedings, important clarifications emerged regarding the applicant's registration status and operational intentions.

The authorized person disclosed that the applicant held GSTIN/UIN/Temporary Id as 222500000278ARY as an unregistered entity at that juncture. The representative confirmed the company's intention to commence fleet operation services for organizational clients, covering vehicle maintenance and repair work, insurance arrangements, driver services, and fuel charges calculated on a kilometer basis for commercial vehicles and equipment.

The representative reiterated that under the proposed contractual framework, separate invoices would be raised for each service category with applicable taxes, and fuel expenses would be separately charged to customers based on per-kilometer calculations. The authorized person reaffirmed the positions articulated in their application dated 25-07-2025 and requested expeditious disposal of the matter.

Jurisdictional Provisions

The Authority examined its mandate under the relevant provisions of the CGST Act, 2017. Section 96 of CGST Act, 2017 establishes that the Authority for Advance Ruling constituted under State GST Act or Union Territory GST Act provisions shall be deemed the Authority for advance ruling for that respective State or Union Territory.

Section 97(2) of CGST Act, 2017 delineates the specific questions on which advance ruling may be sought, encompassing:

  • Classification of any goods or services or both
  • Applicability of notifications issued under the Act
  • Determination of time and value of supply of goods or services or both
  • Admissibility of input tax credit of tax paid or deemed to have been paid
  • Determination of liability to pay tax on any goods or services or both
  • Whether applicant requires registration
  • Whether any particular action by the applicant amounts to supply of goods or services