By CA Surekha S Ahuja
Introduction: The GST Dilemma of Fancy Vehicle Numbers
The auction or allotment of fancy vehicle registration numbers by Regional Transport Offices (RTOs) has emerged as a critical interpretational challenge under GST. The fundamental issues revolve around taxability, charge mechanism (forward or reverse), applicable rate, ITC eligibility, interest liability, and the validity of Section 74 Show Cause Notices (SCNs).
This article provides an exhaustive legal, procedural, and judicial analysis to guide taxpayers and practitioners through this evolving and disputed domain.
Taxability of Fancy Number Auction — Supply or Sovereign Function?
The core question is whether the RTO’s activity of allotting a preferred or fancy registration number in exchange for a fee amounts to a “supply of service” under Section 7 of the CGST Act, 2017, or a sovereign regulatory function exempt from GST.
▪ Department’s Position:
The activity involves granting a privilege or “right to use” a registration mark for consideration.
Therefore, it qualifies as a supply of service, taxable under GST.
Classified under Serial No. 35, Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 — “Other miscellaneous services not elsewhere classified” — taxable at 18% (9% CGST + 9% SGST).
▪ Taxpayer’s Argument:
The fee is regulatory in nature, not consideration for a commercial service.
RTO performs a sovereign function under the Motor Vehicles Act; such acts are not “in the course or furtherance of business.”
Hence, the activity should be outside the scope of supply under Section 7(2) of the CGST Act, read with Schedule III.
▪ Legal Parallel:
The Supreme Court in Union of India v. Delhi Cloth & General Mills Co. Ltd. [(1963) AIR 791 (SC)] observed that sovereign functions do not constitute commercial activities. Similarly, various High Courts have held that fees for statutory permissions are not taxable unless rendered in a commercial capacity.
However, the departmental position under GST tends to treat such activities as supply of services where a “benefit” is conferred for consideration.
Forward Charge vs. Reverse Charge Mechanism (RCM)
The Show Cause Notices in these cases generally invoke Reverse Charge under Section 9(3) of the CGST Act read with Notification No. 13/2017-Central Tax (Rate).
▪ Reverse Charge Applicability:
Under Sl. No. 5 of Notification 13/2017:
Services supplied by the Central Government, State Government, Union territory, or local authority to a business entity are taxable under RCM, except for renting, postal, or transportation services.
Thus:
If recipient is an individual (non-business) → Service exempt under Notification No. 12/2017, Sl. No. 6.
If recipient is a business entity → Liable to pay GST under RCM at 18%.
▪ Forward Charge Non-Applicability:
Since RTO (State Government authority) is not a taxable person in this case, forward charge mechanism does not apply unless the department treats the auction as a “commercial activity.”
Input Tax Credit (ITC) Eligibility
Where GST is paid under RCM, the recipient (taxpayer) can claim ITC subject to Section 16(2) conditions:
Self-invoice issued under Section 31(3)(f);
Service actually received;
Tax paid to government;
Return filed under Section 39.
However, Section 17(5) may restrict ITC on motor vehicles unless used for:
Transportation of goods or passengers;
Training of drivers; or
Further supply (e.g., dealer in vehicles).
Hence, ITC is not available for vehicles used for personal or non-business purposes.
Interest Liability — Section 50
If tax is payable under RCM but not discharged timely, interest at 18% per annum applies under Section 50(1).
Key points:
Interest is automatic and compensatory, not penal (as held in Daejung Moparts (P) Ltd. v. UOI [2022-VIL-60-DEL]).
Computed from the day after due date till the date of payment.
Payable even if liability admitted later or voluntarily under Section 74(5).
Section 74 SCN — Fraud or Interpretation Dispute?
Most Show Cause Notices invoke Section 74(1), alleging “suppression of facts” for failure to pay GST under RCM. However, the legal sustainability of such notices is highly debatable.
▪ Legal Requirements:
Section 74 applies only when tax short-paid is due to fraud, willful misstatement, or suppression of facts.
Courts have repeatedly held:
Mens rea (intent to evade) must be proven. (Safecon Lifescience v. UOI, Allahabad HC)
Interpretational ambiguity cannot be treated as suppression. (Century Metal Recycling (P) Ltd. v. UOI, Delhi HC)
CBIC Instruction (13.12.2023) mandates material evidence of fraud before invoking Section 74.
Thus, where taxability itself is uncertain and subject to ongoing CBIC deliberation, invocation of Section 74 is unjustified. Instead, proceedings should fall under Section 73 (non-fraud cases).
▪ Limitation:
For FY 2018–19:
Due date of annual return: 31.12.2019
Order must be passed by: 31.12.2024
SCN must be issued by: 30.06.2024
Any SCN issued beyond this period is time-barred.
Advance Ruling and Judicial Precedents
▪ Pydi Ganesh Chandra Babu (AAR Andhra Pradesh, 2018)
The applicant sought clarity on taxability and rate of GST on fancy numbers auctioned by RTO. The application was withdrawn before hearing, and hence, no ruling was delivered. This indicates the uncertainty even at the administrative level.
▪ Tribunal/High Court Observations:
While no GST-era appellate tribunal ruling specifically addresses fancy number auctions, courts in related contexts (e.g., spectrum auction, mining rights) have observed that granting a privilege by government for consideration may fall within the ambit of taxable supply if done commercially, but not when part of sovereign regulatory functions.
Key Reference:
Union of India v. Mineral Area Development Authority [(2011) 4 SCC 450] — Governmental royalties and permissions must be examined in light of legislative intent and regulatory character.
Hence, the taxability of fancy numbers remains legally unsettled.
State-wise Approaches and Ongoing Ambiguity
| State | Approach Taken | Rate Applied | Mechanism | Legal Status |
|---|---|---|---|---|
| Delhi | SCN issued to Transport Dept by CGST | 18% | RCM | Contested |
| Haryana | SCN issued to business entities | 18% | RCM | Under adjudication |
| Uttar Pradesh | Levy proposed up to 28% | 18–28% | RCM | Pending CBIC clarification |
| Tamil Nadu & Maharashtra | Maintain exemption stance | NIL | – | Disputed |
This inconsistent treatment across jurisdictions reflects the absence of a uniform policy and underscores the taxpayer’s right to claim bona fide interpretational defense.
Visual Compliance Decision Matrix: Is GST Payable on Fancy Vehicle Number?
| Scenario | Supplier | Recipient | Mechanism | GST Rate | ITC Availability | Remarks / Action |
| Individual buying fancy number for personal car | State Government (RTO) | Individual | Exempt (Notification 12/2017, Sl. 6) | Nil | Not Applicable | Sovereign, non-business use |
| Company buying fancy number for official fleet | State Government (RTO) | Registered business entity | Reverse Charge (Notification 13/2017, Sl. 5) | 18% | Available if vehicle used for business | Ensure self-invoicing and ITC compliance |
| Vehicle dealer securing fancy number for resale | State Government (RTO) | Registered dealer | Reverse Charge | 18% | Available | Treated as business expenditure |
| Auction of special numbers to raise revenue | State Government | Public / Bidders | Possibly outside supply (sovereign function) | Nil (disputed) | – | Interpretational ambiguity persists |
Taxpayer’s Action Points and Defenses
Challenge Section 74 invocation — Absence of mens rea, bona fide interpretational doubt, and lack of CBIC clarification.
Assert sovereign function argument — Allotment of registration mark is regulatory, not commercial.
Seek clarification or advance ruling — To establish tax position proactively.
Claim ITC if applicable — For vehicles used exclusively in business.
Ensure limitation compliance — Verify SCN timelines per Section 74(10).
Consider settlement options — Pay tax + interest + 25% penalty within 30 days of SCN to conclude proceedings (Section 74(8)).
Emerging Development — Section 74A (Prospective Reform)
The 53rd GST Council Meeting (June 2024) recommended insertion of Section 74A, harmonizing timelines for all SCNs irrespective of fraud or non-fraud. Though effective prospectively (Nov 2024), it aims to streamline disputes like the present case.
Conclusion: The Unresolved GST Landscape
The issue of GST on fancy number auctions by RTOs continues to be legally ambiguous and administratively inconsistent. The core disputes—whether it’s a sovereign act or taxable supply, the rate (18% or 28%), and mechanism (RCM)—remain unresolved as of November 2024.
Key takeaways for taxpayers:
Until CBIC or the GST Council issues a clear circular, taxpayers can legitimately rely on the interpretational defense.
RCM liability, if any, should be complied with prospectively with self-invoicing and ITC documentation.
Section 74 invocation is questionable absent fraud evidence.
Interest is automatic but limited to delay periods.
Future rulings or CBIC circulars are expected to harmonize treatment across states.
In essence, this issue exemplifies the tension between regulatory governance and tax policy — demanding judicial clarity to ensure consistency, fairness, and certainty for taxpayers across India.
