AAR classifies Rapido as E-Commerce Operator for app-based cab services

Introduction

In a recent ruling dated July 24, 2024, the Karnataka Authority for Advance Rulings determined that Rapido, an app-based transportation service operated by M/s Roppen Transportation Services Pvt Ltd¹, qualifies as an E-Commerce Operator as per the Goods and Services Tax Act, 2017 (‘the Act’).

Rapido (‘Applicant’) currently provides a platform for booking two and three-wheeler passenger transport services and plans to extend its services to four-wheeler cabs on a subscription basis. Despite the Applicant’s claim that it merely connects independent drivers with passengers without controlling fare or collections, the Karnataka Authority for Advance Rulings (‘AAR’) held that the Applicant manages the digital platform for these services, fitting the definition of an E-Commerce Operator (‘ECO’). According to relevant provisions of the Act, ECOs are liable for Goods and Services Tax (GST) on certain notified intra-state services. The AAR highlighted that transportation services by motor cabs are included in such notified services as per Notification No. 17/2017, thereby making Rapido liable to pay GST.

Furthermore, the AAR clarified that Rapido’s role in facilitating fare negotiations, ride monitoring, and customer notifications during the journey supports the view that the entire service is supplied through Rapido’s platform. Consequently, Rapido must comply with GST obligations for all services provided via its app.

Facts of the case

• The Applicant provides technology-based services for booking two and three-wheelers through third-party drivers i.e., Captains via its website and app.
• The Applicant plans to extend these services to four-wheeler cabs using a subscription-based mobile application platform. This platform shall connect independent four-wheeler cab providers with potential passengers.
• The drivers must register with the app, enter into a standard agreement, and possess a business user account with the necessary licenses or permissions to use the app.
• In the proposed model, the independent four-wheeler cab service providers become subscribers to the app, and the relationship between drivers and passengers is managed privately.
• The app functions as a service provider’s hub, allowing providers full control over their supply without any influence from the Applicant, facilitating direct interactions and transactions.
• The drivers independently manage their services, with fare details set by them directly. The Applicant does not handle fare collection or related transactions. Passengers pay drivers directly, and the Applicant does not collect money from passengers on behalf of drivers.
• The monetization model proposed is commission-free, implying that the Applicant does not profit from these transactions directly.
• Additionally, the Applicant plans to offer an optional per-ride monitoring fee to ensure passenger safety during rides, providing an extra service that passengers can choose for enhanced safety measures.

Applicant’s Contention

• The Applicant asserts that their tax liability is limited to an 18% GST on the subscription fees they receive, as outlined in Sections 9(1) and 5(1) of the Act and Notifications No. 11/2017 and No. 17/2017.
• According to the Applicant, drivers using the app are responsible for any taxable supplies and corresponding tax obligations and accordingly the tax liability for the services provided through their app lies with the suppliers (drivers), not with the Applicant.
• The Applicant contends that acting solely as a discovery platform, they facilitate connections between drivers and passengers without providing transportation services directly, absolving them from tax on services supplied by drivers.
• The Applicant emphasizes that their operations are limited to collecting subscription fees, not service fees, and therefore, the tax responsibility for outward supplies rests with the drivers.
• Based on the legal provisions and advance rulings to support their stance, the Applicant believes that they owe GST at 18% on facilitation charges, not on the total service value provided by third parties.

References made:

• Multi-Verse Technologies Pvt Ltd (KAR ADRG 36/2022 dated 27.10.2022)
• Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
• Notification No. 17/2017-Central Tax (Rate) dated 28.06.2017

Issues raised before the Karnataka’s AAR

1. Whether the Applicant qualifies as an ECO and meets the supply definition under the Act?
2. Whether the supply provided by the independent four-wheeler cab service provider to passengers qualifies as a supply by the Applicant?
3. Whether the services provided by an independent four-wheeler cab service qualify as being supplied ‘through’ an ECO?
4. Is the Applicant liable to pay GST on the services provided by the independent four-wheeler cab service provider to passengers using the Applicant’s app platform?
5. What is the applicable GST rate on the ride monitoring fee, and what SAC code should be used?
6. Is the Applicant liable to pay GST on the services provided by the independent three/two-wheeler cab service provider to passengers using the Applicant’s app platform?

Decision of the Karnataka’s AAR

1. Whether the Applicant qualifies as an ECO and meets the supply definition under the Act?
2. The AAR reiterated that the Act defines an ECO as any individual or entity that owns, operates, or manages a digital or electronic platform for e-commerce, including the provision of goods, services, or digital products through a digital network.
3. In the instant case, the Applicant operates the Rapido App, a digital platform for service delivery, thus satisfying the definition of an ECO as per the relevant provisions of the Act.
4. Consequently, the AAR determined that the Applicant is an ECO.  

1. Whether the supply provided by the independent four-wheeler cab service provider to passengers qualifies as a supply by the Applicant?
2. The AAR highlights relevant provisions of the Act and Notification 17/2017, which specifies that services provided by an ECO include intra-state transportation of passengers by radio-taxi, motorcab, maxicab, and motorcycle.
3. The Notification specifies that terms such as “maxicab”, “motorcab”, and “motorcycle” have the same meaning as in the Motor Vehicles Act, 1988. Specifically, a “motorcab” means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire.
4. In the instant case, the transportation services are provided by a four-wheeler cab with a capacity to carry a maximum of four passengers, excluding the driver, which fits the definition of a “motorcab”.
5. Therefore, the supply provided by the independent four-wheeler cab service provider qualifies as a supply by the ECO i.e., the Applicant, as it meets the conditions outlined in the Notification and the Act.

1. Whether the services provided by an independent four-wheeler cab service qualify as being supplied ‘through’ an ECO?
2. The AAR cites the Merriam-Webster dictionary to interpret ‘through,’ noting that services supplied through an ECO involve the ECO’s role from start to finish.
3. The AAR outlines the process of how the App functions: the App sends ride information to drivers, the driver offers a fare, the passenger can negotiate, and if agreed, the ride details are shared with the driver. The App captures and displays the fare, notifies the passenger of the driver’s arrival, and shows the route during the ride. Payments are collected directly by the driver, not the App.
4. Conclusively, since the App manages the ride from start to end, the services are deemed supplied through the ECO. Hence, the AAR ruled that the services provided by an independent four-wheeler cab service qualify as being supplied ‘through’ an ECO.

1. Is the Applicant liable to pay GST on the services provided by the independent four-wheeler cab service provider to passengers using the Applicant’s app platform?
2. Based on the above observations and findings, the AAR concludes that the Applicant falls within the definition of an ECO, and the supply of services by way of transportation of passengers by motorcabs is conducted through them.
3. Therefore, in accordance with Section 9(5) of the Act, the Applicant is liable to pay GST on the supply of transportation services provided by motorcabs.

• What is the rate at which GST shall be collected on the ride monitoring fee and the SAC code that shall be applicable?
• The said service is classified under SAC 9985, specifically 998522 (Security consulting services), and attracts an 18% GST (9% CGST and 9% SGST).

• Is the Applicant liable to pay GST on the services provided by the independent three/two-wheeler cab service provider to passengers using the Applicant’s app platform?
• As stated above, the definition of “motorcab” includes any motor vehicle constructed or adapted to carry not more than six passengers, excluding the driver, and a “motorcycle” is a two-wheeled motor vehicle with or without a detachable side-car.
• Since three-wheelers fall under “motorcab” and two-wheelers under “motorcycle,” the Applicant is liable to pay GST on the services supplied through the Applicant’s app platform for these vehicles

Conclusion

In this landmark ruling, the Karnataka AAR established that Rapido is classified as an E-Commerce Operator (ECO) under the CGST Act, thus making it liable for GST on passenger transport services facilitated through its platform. Although Rapido does not directly control fare collection, it is still accountable for GST due to its role in facilitating and overseeing these services.

The Ruling confirms that the Act requires ECOs to pay GST on specified intra-state services, including passenger transport by motor cabs (both three and four-wheelers) and two-wheelers. Additionally, Rapido shall also account for GST on the optional safety monitoring services offered via its app.

This ruling sets a significant precedent for the ride-hailing industry, affecting how GST is applied to similar companies and driving the sector to seek greater clarity and consistency from authorities.

¹https://gst.kar.nic.in/Documents/General/ROPPENTRANSPORTATION29724.pdf