HIRING/RENTING OF MOTOR VEHICLE UNDER REVERSE CHARGE 9(3)

1. Recently a new Notification no 22/2019 dated 30th Sep 2019 was introduced wherein Renting of Motor vehicle was made taxable under Reverse charge. But not all is renting and not all is taxable under RCM. Lets us find out:

2. Notif no : 22/2019 CGST (rate) dt 30.9.2019 (entry 15) reads as below:

Sl Category of Supply of Services Supplier of Service Recipient of Service
(1) (2) (3) (4)
15 Services provided by way of renting of motor vehicle provided to a body corporate Any person other than a body corporate , paying central tax at the rate of 2.5% (amended as ‘’other than 12% vide notif 29/2019’’ CGST Rate) on renting of motor vehicles with input tax credit only of input service in the same line of business. Any  Body Corporate located in the taxable territory.

3. What type of service is covered?

Renting of motor vehicle has been made taxable under RCM. Renting means a vehicle has been made available in possession with the recipient to use it with its own control for the effective period of time.

4. How is renting different from other nature of services?

4a) If the vehicle owner merely picks passengers/employees from one place and drops it to another place it is merely a passenger pick and drop service and not renting of motor vehicle.

4b) Another important nature of service is leasing. A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. In such a case leasing falls out of the ambit of above entry no 15 and will become taxable at the rate of sale of motor vehicle.

The intention behind this could have been that tax does not get evaded by transferring the motor vehicle disguising it as a lease. We know that tax on supply of motor vehicle attracts comparatively higher rate of tax along with compensation cess in comparison to tax rate on lease of motor vehicle. Hence if a motor vehicle is leased out for virtually the entire effective life of vehicle it is nothing but a transfer disguised as lease. Therefore to avoid this, lease has been made applicable @tax rate applicable on sale of vehicle including cess. This becomes taxable in HSN 9971/9973 as the case maybe.

5. Following is the view wrt Notif no : 22/2019 CGST (rate) dt 30.9.2019 (entry 15) and Notif no 29/2019 CGST (Rate) dt 31.12.2019 (amending parent notification no 13/2017 CGST(rate) dt 28.06.2017)

a) If the supplier is a non-body corporate

b) If the recipient is a body corporate

c) If supplier used to charge other than 12% before 1.10.2019

d) Billing is done for idle time of vehicle by supplier. (vehicle’s effective control is with recipient and operator (i.e. driver) is of supplier). The motive of renting should be established.

Then if all above are fulfilled, RCM will be applicable in HSN 9966 @5%. Its input will be blocked if it is a cab/jeep (or any vehicle having seating capacity of less than 13 persons). If it is a bus it will be available.

6. 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 9966) with or without availing ITC;  or

c) The service recipient is not a body corporate i.e. it is a proprietorship or partnership firm.

d) Cab not charging for idle time

If cab/jeep is not billing for idle time, i.e. bus/cab after picking and dropping of passengers/employees goes for its own business or does not continue to stay at recipients’ premises, then it is a mere pick and drop service rendered by supplier taxable in HSN 9964 (passenger transportation service) without RCM. (For eg A cab can be rented for the whole day (rent-9966) as well as on trip basis to take from 1 point A to point B(pick-drop service 9964)

7. In this HSN supplier has 3 options to charge tax rate:

a) 12% with ITC (if fuel is made part of consideration)

b) 5% without ITC (if fuel made part of consideration) (ITC not available to supplier except in same line of business for supplier i.e supplier taking cab service from another cab service provider)

c) other than a) and b) is 18% with input for supplier (where fuel is not charged in consideration)

8. Input allowed or not?

For recipient if its a cab, no input allowed whether RCM or not. That is because same is blocked under sec 17(5) of CGST Act 2017 as amended by 2018 CGST amendment act. Having paid GST / IGST on RCM basis, input tax credit would 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. Hence the same will be an additional cost for companies.

9. Conclusion:

Hence it is important to identify that is the service a mere pick and drop service or a renting of vehicle or leasing. Difference between leasing and renting is thin. It is to be gauged from the intention whether a vehicle is transferred to recipient disguising it as a lease or not. A mere pick and drop service is not covered in RCM in said notification. However renting of vehicle is covered as discussed above.

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Qualification: CA in Practice
Company: RSAG /Mamraj & Co.
Location: Delhi, New Delhi, IN
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4 Comments

  1. shubhamagarwal says:

    Pls ignore previous reply. Since ola /uber is a body corporate and if supplier is body corporate, RCM provision under this entry is not applicable

    1. shubhamagarwal says:

      If recipient is non corporate and ola/uber is hired for a time period for eg. for a day/week etc (and not for regular trips that we all book for eg. from Point A to point B) then RCM should be applicable.

    2. shubhamagarwal says:

      Pls ignore previous reply. Since ola /uber is a body corporate and if supplier is body corporate, RCM provision under this entry is not applicable

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