As per section-9(3) of CGST Act, 2017 and section-5(3) of IGST Act, 2017, the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of the act shall apply to such recipient as if he the person liable for paying the tax in relation to the supply of such goods or services or both.
Initially, the government had issued notifications to notified the categories of services on which tax will be payable under reverse charge mechanism under CGST Act vide Notification No.-13/2017-Central Tax (Rate) dated 28-06-2017 and under IGST Act vide Notification No.-10/2017-Integrated Tax (Rate) dated 28-06-2017. The government had also notified the categories of goods under reverse charge under CGST Act vide Notification No.- 04/2017-Central Tax (Rate) dated 28-06-2017 and under IGST Act vide Notification No.-04/2017-Integrated Tax (Rate) dated 28-06-2017.
Further, the government had notified the categories of other supply of goods and services on which reverse charge would be applicable and thereby made amendments under Central Tax vide Notifications No.-
The government introduced reverse charge on services of renting of motor vehicle vide Notification No.-22/2019- Central Tax (Rate) dated 30.09.2019 which was later on amended through Notification No.-29/2019-Central Tax (Rate) dated 31.12.2019.
In the said notification, the following has been substituted:-
|Category of Supply of Services||Supplier of service||Recipient of Service|
|Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate.||Any person, other than a body corporate who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6 percent to the service recipient||Any body corporate located in the taxable territory.”|
There was ambiguity among the taxpayers in regard to the applicability of the reverse charge on the renting of motor vehicle. Hence, Government vide Circular No.-130/2019 dated 31.12.2019 clarified that:-
There are only two rates applicable on the service of renting of vehicles, 5% with limited ITC and 12% with full ITC. The questions were arising:-
i. Where the supplier of the service charges GST @12% from the service recipient, the service recipient shall not be liable to pay GST under RCM;
ii. Where the supplier of the service doesn’t charge GST @ 12% from the service recipient, the service recipient shall be liable to pay GST under RCM
And, hence given the interpretation that RCM shall be applicable on the service by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient only if the supplier fulfils all the following conditions:-
i. is other than a body-corporate;
ii. does not issue an invoice charging GST @12% from the service recipient;
iii. Supplies the services to a body corporate
The government has notified the rate of renting of motor vehicle vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which later on amended vide Notification No.-31/2017-Central Tax (Rate) dated 13.10.2017
|Chapter, Section or Heading||Description of Service||Rate
(Rental Services of transport vehicles)
|“(i) Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient||2.5||Provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business (i.e. service procured from another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle) has not been taken.
[Please refer to Explanation no. (iv)]
|(ii) Rental Services of transport vehicles with or without operators, other than (i) above.||9||–|
The condition is that the credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that,-
a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and
b) credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder.
Hence, the above provisions have been summarized below:
|S No.||Service Provider||Service Recipient||Rate charged by supplier||RCM applicability|
|1.||Other than Body Corporate (Registered)||Body Corporate||5% without ITC||Yes|
|2.||Other than Body Corporate (Registered)||Body Corporate||12% with ITC||No|
|3.||Body Corporate||Body Corporate||5% without ITC or 12% with ITC||No|
|4.||Other than Body Corporate (Registered)||Other than Body Corporate (Registered)||5% without ITC or 12% with ITC||No|
|5.||Other than Body Corporate (Registered)||Other than Body Corporate (Registered)||5% without ITC or 12% with ITC||No|
|6.||Other than Body Corporate (Unregistered)||Body Corporate||5% without ITC or 12% with ITC||No|
|7.||Other than Body Corporate (Registered)||Body Corporate||18%||No|
Whether reverse charge would be applicable if the service provider is an unregistered person is still debatable. Hence, some taxpayers are paying GST on such transactions under reverse charge whereas others are not covering such transaction under reverse charge and applying this provision only if such services are received from an registered person.
“Body corporate” for the applicability of reverse charge has same meaning as assigned to it in Clause (11) of section – 2 of the Companies Act, 2013 which includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company etc.
“Body corporate” or “corporation” includes a company incorporated outside India, but does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf;
Further, the question arises whether the gst paid under reverse charge would be eligible for input tax credit?
In this regard, the government has put restriction on input of renting of motor vehicle vide section -17(5) sub clause (b) of the CGST(Amendment) Act, 2018 which states that input tax credit shall not be available in respect of renting or hiring of motor vehicles except when used for the purpose specified therein,
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
Hence, input would be available only if registered person paying GST under reverse charge engaged in same line of business.