Delhi HC Upholds Withdrawal of Tax Exemption Granted to ECOs such as Uber, Make My Trip

In a common order dated April 12, 2023, the Delhi High Court in Uber India Systems Private Limited vs. Union of India & Anr. [WP(C) 14048/2021] and two other cases upheld the withdrawal of tax exemption earlier granted to Electronic Commerce Operators (ECOs) from paying GST for services provided by auto rickshaws and non-airconditioned stage carriages through such ECOs. The Division Bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora opined that by requesting tax exemption available to individual service providers, the ECOs are “seeking equality amongst unequals”.

On June 28, 2017, the Central Government released a notification imposing a tax of 2.5% on passenger transport services. On the same day, another notification was issued providing an exemption from payment of GST in case of services provided by auto rickshaws and non-airconditioned stage carriage. And this exception was applicable regardless of whether the mode of booking was online or offline. Thereafter, the said notification was amended on November 18, 2021, and the exemption granted to ECOs was withdrawn.

Aggrieved by this amendment, the petitioners, Uber India Systems Private Limited, Pragatisteel Auto Rickshaw Driver Union, IBIBO Group Private Limited and Make My Trip (India) Private Limited filed writ petitions before the Delhi High Court. The petitioners challenged the notifications dated November 18, 2021, alleging differential tax treatment by the government solely based on the mode of booking. Uber contended that the notifications have a negative impact on its business and affect the livelihood of the 2,40,000 driver partners registered with it. IBIBO and Make My Trip claimed that the denial of tax exemption to passenger transportation services by non-air-conditioned stage carriages availed through ECOs is discriminatory.

Reiterating that taxing statutes can “pick and choose to tax some” provided that the classification is reasonable, the Delhi High Court held that the impugned notifications dated November 18, 2021, are not violative of Article 14 as they fulfil the test of reasonable classification. Further, it was observed that the Central Goods and Service Tax Act, 2017 treats ECOs as a class distinct and separate from individual service providers and requires ECOs to pay tax with respect to services provided by individual suppliers through its platform even if the individual suppliers are exempt from paying tax. Hence, it was noted that the impugned notifications are not ultra vires of the Act. The writ petitions were accordingly dismissed.