The Karnataka Authority for Advance Rulings (AAR) has determined that Rapido, a ride-hailing platform, is responsible for paying Goods and Services Tax (GST) on its cab services. This ruling has added to the existing uncertainty regarding GST obligations for app-based mobility companies that use a subscription model. Rapido argued that it charges a subscription fee to its driver partners instead of taking a commission and does not earn revenue from the fares. However, the AAR decided that GST is applicable to Rapido’s services, even though they are provided through independent four-wheeler service providers. This decision, dated July 24, could potentially expose Rapido to past tax liabilities on its cab services. The company, which recently raised $120 million in funding, becoming a unicorn, is reportedly considering appealing the AAR’s decision.
The order specifies that Rapido’s parent company, Roppen Transportation, must pay GST on services provided by independent cab drivers using the Rapido app. This requirement falls under Section 9 (5) of the CGST Act 2017, which mandates that e-commerce operators collect and remit taxes on behalf of service providers on their platforms. Rapido has not responded to email queries regarding the ruling, which, according to an expert, can be appealed and may apply retroactively.
Rapido began as a bike taxi platform and later expanded to include four-wheeler cab services in cities like Bengaluru, Delhi-NCR, and Hyderabad using a subscription model. This model involves charging drivers a daily or weekly fee to connect with customers, unlike the commission model where platforms typically pay a 5% GST on fares. This commission-based GST is required under Section 9 (5) of the CGST Act for platforms like ride-hailing services, food delivery companies, and online marketplaces.
Despite using a subscription model, Rapido claims it does not generate revenue from passenger fares. Previously, a similar model by Namma Yatri, another ride-hailing platform operating under the government’s Open Network for Digital Commerce (ONDC), received a favorable ruling from the AAR, exempting it from GST payments.
In April, it was reported that larger platforms like Ola and Uber also started offering subscription models for three-wheeler services to avoid tax discrepancies. However, there remains a lack of clarity on whether these subscription-based services are liable for GST, leading to potential conflicts between operators and tax authorities.
Experts have noted that the current ruling on Rapido contradicts an earlier decision favoring Juspay Technologies (Namma Yatri), highlighting inconsistencies in how similar cases are treated within the same jurisdiction. This inconsistency results in different GST obligations for companies in the same sector, which is problematic given the narrow profit margins of app-based transport services. There is a call for the GST Council to provide a comprehensive review and clarification on this issue to resolve ambiguities.