GST on Electric Bus Rental Services: AAR Gujarat Holds 18% Applicable as Electricity Does Not Constitute 'Fuel'

Background and Overview

The Gujarat Authority for Advance Ruling recently delivered a significant ruling in the matter of In re JBM Ecolife Mobility Surat P Ltd (GST AAR Gujarat), addressing a critical question that has emerged with the rapid expansion of electric mobility in India — whether rental services involving electric buses should attract concessional GST rates available under Entry No. 10(i) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, or whether such services fall under the residual category taxable at 18%.

The ruling has far-reaching implications for entities operating electric bus fleets under government-driven urban mobility programs, particularly those structured under the Gross Cost Contract (GCC) model, where the service provider bears all operational costs and receives payment on a per-kilometre basis.

Profile of the Applicant and Nature of Operations

The applicant, M/s JBM Ecolife Mobility Surat P Ltd, having GSTIN 24AAFCJ4549P1Z1, operates from Plot No. 70, BRTS Bus Depot & Workshop, TP Scheme No. 48, Opp. Unn-Bhestan Urban Health Centre, Bhestan, Surat, Gujarat-395 023. It was incorporated as a Special Purpose Vehicle (SPV) in accordance with tender conditions under India's National Electric Bus Program (NEBP) — a flagship Union Government initiative targeting the deployment of 50,000 electric buses across various states.

The applicant successfully bid for a contract pursuant to Request for Proposal bearing No. CESL/6/2022-23/E-buses/GC-2/222309007 dated 21.09.2022 for the procurement, operation, and maintenance of 150 units of 12-metre BRTS air-conditioned electric buses in Surat city.

Contractual Structure

  • A Master Concession Agreement dated 21.08.2023 was executed between the applicant and Surat Municipal Corporation (SMC) for the supply, operation, and maintenance of electric buses.
  • Subsequently, SMC transferred all supervisory and payment-related responsibilities to Surat Sitilink Limited (SSL), a wholly owned subsidiary of SMC, through a Tripartite Agreement dated 05.04.2024 among the applicant, SMC, and SSL.
  • The monthly invoices are raised by the applicant on SSL, which is contractually obligated to process payment within thirty days.

Scope of Obligations Under the Concession Agreement

The applicant's responsibilities under the agreement encompassed:

  1. Design, manufacture, procurement, and supply of buses conforming to prescribed specifications
  2. End-to-end operation and maintenance of buses as per the agreement
  3. Development, equipping, operation, and maintenance of maintenance depots
  4. Procurement and installation of charging infrastructure at designated depot sites

The consideration payable to the applicant is determined by multiplying the aggregate bus kilometres travelled by all buses with ₹59.29 per kilometre (referred to as 'PK fee' in the agreement).

Clause 16.4.1 of the Concession Agreement expressly provides that the Authority (SSL) holds the exclusive right to determine routes, frequency, and schedules of buses throughout the contract period.

Questions Raised Before the Authority

The applicant approached the AAR seeking advance rulings on the following issues:

  1. What is the scope of Entry (i) of Sl. No. 10 of Notification No. 11/2017-Central Tax (Rate)?
  2. Whether the services of the applicant qualify under Entry (i) of Sl. No. 10 of the Rate Notification, given that the buses are powered by electrical energy?
  3. Whether the services are taxable under Entry (iii) of Sl. No. 10 of the Rate Notification on the ground that fuel cost is not included in the consideration charged?

Classification of Service: SAC 996601

Applicant's Position

The applicant argued that its services are most appropriately classifiable under SAC 996601, which covers "rental services of road vehicles including buses, coaches, cars, trucks and other motor vehicles, with operator."

The applicant further relied on the Explanatory Notes to the Scheme of Classification of Services under GST, which state: