Rapido Liable To Pay GST For Its Cab Services: Karnataka AAR

In a major setback for Rapido, the Karnataka Authority for Advance Rulings (AAR) has reportedly held that the ride hailing unicorn is liable to pay goods and service tax for its cab services.

“The applicant (Rapido’s parent company Roppen Transportation) is liable to pay GST on the supply of services provided by the independent four-wheeler cab service provider (person who has subscribed to the applicant’s Rapido app) to his passengers on the applicant’s app platform, being an ecommerce operator, in terms of Section 9 (5) of the CGST Act 2017,” the ARR order was quoted as saying by ET.

As part of the hearing, Rapido submitted that it charges its drivers a subscription instead of a commission, without making any revenue on the fare.

It is pertinent to note that the retrospective ruling will open Rapido to previous tax dues on its cab services. 

This also comes at a time when Rapido turned unicorn after raising a funding of $120 Mn from its existing investor WestBridge Capital at a post-money valuation of a little over $1 Bn. 

Last year in December, it entered the cab booking services category with the launch of Rapido Cabs. The Swiggy-backed company then said it had a fleet of around 1 Lakh cabs on its platform and the service is currently operational across Delhi NCR, Hyderabad and Bengaluru. 

Inc42 has reached out to Rapido for comments on the development. The story will be updated based on the response. 

This Karnataka ARR further adds to the ambiguity regarding the GST applicability on the ride-hailing companies operating via a subscription model with their drivers and service providers. 

Contrary to this ruling, the Karnataka ARR ruled in favour of  Namma Yatri which offers a subscription-based model to its driver-partners, allowing it to not pay GST.

In the case involving Juspay Technologies, the company behind the Namma Yatri mobility platform, the AAR relied on the dictionary definition of the word “through.” It concluded that merely linking service providers with customers via a digital platform does not constitute a supply of service and is thus not subject to tax.

The same Karnataka authority had previously issued an opposite ruling in the case of Opta Cabs Pvt Ltd. Additionally, the Tamil Nadu Advance Ruling Authority, in a recent decision regarding Balat Enterprises Pvt Ltd, held that the company, which provides a platform for small business owners to connect with customers, is liable to discharge tax under Section 9(5) of the CGST law for specified services.

Not to mention, these ride-hailing platforms incur a 5% GST on the fair for rides they facilitate through the commission model.

However, under the subscription model, these platforms charge a daily or weekly fee to driver partners to avail of the offerings given by ride-hailing platforms like getting recognised by customers. 

This development comes against the backdrop of other major players like Ola and Uber introducing their subscription-based models for their three-wheeler booking services.

Meanwhile, earlier this month it was also reported that platforms such as Uber have approached the finance ministry seeking clarity on if their business was liable to incur indirect tax or not. 

Earlier this year, the Karnataka transport department fixed uniform fares for all taxis plying in the state, including metre-based taxis. Under the new regime, the app-based cab aggregators will not be able to levy surge charges to customers during peak hours.

These app-based cab services have also been scrutinised by other state governments, like those in Delhi and Maharashtra, for various reasons