You may perhaps be aware that the GST Council in its meeting held on 20.09.2019 at Goa recommended that in the case of registered persons other than body corporate (e.g. proprietorship, HUF or partnership firm) engaged in renting of vehicles and paying 5% GST (without availing ITC), GST should be paid by the recipient of service if it is a body corporate entity. In other words, the services of renting of motor vehicle from non-body corporate entity to body corporate entity is brought under reverse charge mechanism (RCM), as was the practice during pre-GST regime.
2. To implement the recommendation of GST Council, the Govt. has issued notification No. 22/2019-CT (R) dated 30.09.2019 to amend the parent RCM notification No. 13/2017-CT (R) dated 28.06.2017 issued under section 9(3) of CGST Act, 2017. Under the parent notification, specified services such as services of GTA, Advocates, sponsorship services, services provided by the Govt. / local authority, security services supplied by non-body corporate person, services provided by a person located in a non-taxable territory to any person located in the taxable territory etc. are already subjected to RCM provisions under GST law. The Govt. has now enlarged this list to cover rent-a-cab services provided by individuals, partnership firms etc. to body corporate. The amendment has come into force from 01.10.2019.
3. The RCM provisions requiring the body corporate (recipient of service) to discharge GST will apply in the following conditions:-
(a) The service provider / cab operator is a non-body corporate person i.e. a proprietorship concern, HUF or partnership firm.
(b) The cab operator is unregistered or at the best charging 5% GST in the bill without availing ITC.
(c) The service recipient is a body corporate i.e. a company including private limited company or corporation set under separate statute.
In case all the above 3 conditions are fulfilled, GST will be paid by the service recipient (body corporate) on their own under RCM.
4. The RCM provisions are not applicable in the following situations:-
(a) The cab operator / service provider is a body corporate; or
(b) The cab operator / service provider is paying 12% GST (normal rate under HSN Code 9964) with or without availing ITC; or
(c) The service recipient is not a body corporate i.e. it is a proprietorship or partnership firm.
5. In case the cab operator and service recipient are located in the same State / U.T., the service recipient will pay 2.5% CGST + 2.5% SGST under HSN Code 9964 without availing ITC of goods or services used in rent-a-cab service. In case the cab operator and service recipient are located in different States / U.T., IGST @5% will be paid by the recipient body corporate.
6. Please also note that having paid GST / IGST on RCM basis, input tax credit would still not be available to the body corporate / service recipient. Under section 17(5) of CGST Act, 2017, renting or hiring of motor vehicle having approved seating capacity upto 13 persons (including driver) is not allowed as input tax credit. In view of this specific bar, GST liability paid by the body corporate on RCM basis will be an additional revenue cost.
7. We may clarify that leasing of motor vehicles (HSN Code 9973) from a non-body corporate to corporate entity is not covered by RCM provisions.
Since the RCM provisions casting statutory obligation on the body corporate / service recipient have already come into force from 01.10.2019, we advise you to comply with the provisions and while making payment to the cab operator, create your GST liability and deposit the same by 20th of the month succeeding the month in which payment is made to the cab operator. In case the cab operator has charged 5% GST, you may not reimburse the same and advise him not to charge GST in the bills in future as your company will be paying GST under RCM provisions.
We advise you to make a note of above special provisions and start complying with the same. In case you have any query in this matter, you may write to us for our clarification.