RCM on Renting of Motor Vehicle : A Game Changer

On eve of New Year 2020 Government had again issued some new notifications. One of such notification issued is notification dealing with Renting of Motor Vehicle designed to carry passengers covered under Reverse Charge Mechanism (hereinafter referred as RCM).

In Renting of Motor Vehicle designed to carry passengers, there are two options to pay GST under Forward Charge Mechanism :-

• Pay GST @ 5% and avail ITC only of Input Services received from supplier who is also into similar line of business or
• Pay the GST @ 12% and avail full (100%) ITC in respect of supply of such renting services.

Earlier government had issued Notification No. 22/2019 – Central Tax (Rate), dated the 30th September, 2019 bringing Renting of Motor Vehicle Designed To Carry Passengers under RCM on fulfilment of certain conditions. This notification was applicable from 01/10/2019.

Key aspects of such notification is mentioned as below :

• There should be Renting of Motor Vehicle designed to carry passengers.
• Supplier should be any person other than a Body Corporate.
• Supplier is paying GST @ 5% on such Renting of Motor Vehicle.
• Service Recipient should be a Body Corporate located in taxable territory.

If these conditions are satisfied then recipient is liable to pay GST under RCM as per this notification. However this had lead to interpretation that, a person providing services of Renting of Motor Vehicle designed to carry passengers who is not charging GST @ 12% (who is a non body corporate) to a person who is a body corporate located in taxable territory will covered under RCM and accordingly recipient is liable for payment of GST under RCM.

In order to bring clarity on subject matter, Government had issued another notification i.e. Notification No. 29/2019- Central Tax (Rate) dated 31st Dec, 2019 (similar notification had been issued under IGST act also) along with circular to throw some more light on topic i.e. Circular No. 130/2019 dated 31/12/2019 (both attached herewith for ready reference purpose). Earlier entry pertaining to such Renting of Motor Vehicle under RCM had been SUBSTITUTED by new notification and new provision states that

• There should be Renting of Any Motor Vehicle designed to carry passengers.
• Supplier should be any person other than a body corporate.
• He does not issue an invoice charging GST @ 6%/12% as case may be.
• Recipient should be a Body Corporate located in taxable territory.

Now after insertion of this new Entry, a person other than a body corporate whether he is registered or unregistered under GST if he is not charging GST @ 6%/12% as case may be for such Renting of Motor Vehicle service under SAC 9964 and service recipient is Body Corporate located in taxable territory then his services will be covered under RCM. In nutshell now availment of services of Renting of Motor Vehicle designed to carry passengers from unregistered person other than a body corporate by a body corporate located in taxable territory under GST will also be covered under RCM since in any case he will not be issuing invoice carrying GST as he is unregistered under GST.

Cases where Services of Renting of Motor Vehicle designed to carry passengers will still be covered under Forward Charge Mechanism meaning thereby Service Provider will still be liable for payment of GST in these cases :

• Where Service Provider is a Body Corporate & it is registered under GST. Body Corporate which is unregistered under GST and is providing such Service then recipient in this case will not liable to pay GST under RCM.
• When service recipient is a person Other than a Body Corporate located in taxable territory. In this case whosoever is a Service Provider (if it is registered under GST) will be liable to pay GST under Forward Charge Mechanism. If service recipient is located in non taxable territory then this case may be covered under export of service (Subject to satisfaction of other conditions).
• When Service provider is a Body Corporate (registered under GST) and service recipient is also a Body Corporate. In this case if service provider is a person other than a body corporate then it will be covered under RCM subject to satisfaction of other conditions.
• A person providing such services and issuing invoices charging GST @ 12% (Whether Service provider is a Body Corporate or other than a Body Corporate).

Certain aspects of covering this service under RCM for Service Recipient :-

√ Rate of GST to be paid under RCM :- GST is to be paid under RCM @ 5% considering Place of Supply and Time of Supply Provisions.

√ ITC availability in case GST is paid under RCM :- ITC will be available to recipient of service if he pays GST under RCM on such services subject to condition that such ITC is not covered under Blocked Credit within provisions of section 17(5) of CGST act i.e. ITC is admissible if :

• • Approved sitting capacity of such motor vehicle is more than 13 persons including driver then in such case ITC will be admissible.
  • Approved sitting capacity of such motor vehicle is less than 13 persons then 1) if inward supply of such service is used by a registered person for making an outward taxable supply of same category of service. or 2) Provision of such service is obligatory for an employer to provide to its employee under any law for time being in force. In both these cases ITC can be claimed by service recipient on payment of GST under RCM.

Further, concern had been raised regarding admissibility of ITC if GST under RCM is paid @ 5% since condition attached with such rate is that of having into similar line of business. This condition is for service provider i.e. when service provider is paying GST under Forward Charge then he is having an option to pay GST @ 5% or 12%. When recipient is paying GST under RCM then he is availing credit of only taxes which are paid by him under RCM in cash for services which are taxable under GST and their credit is otherwise an eligible credit i.e. Not a blocked credit. Such renting of motor vehicle is a taxable service under GST. Restrictions in case of 5% is imposed on availing of credit of Input, Input Services (those availed from a person not into similar line of business) & Capital Goods used in providing such renting of motor vehicle services under forward charge. Similar is case with Goods Transport Agency also whereas recipient pays GST under RCM @ 5% and avail ITC of GST paid under RCM.

And last but not the least applicability of such notification dated 31/12/2019.

This notification being more a clarifactory in nature and is substituting entry no. 15 regarding Renting of Motor Vehicle, is considered to be applicable from 01/10/2019 onwards i.e. having retrospective effect leading to conclusion that in between period 01/10/2019 and 31/12/2019 if any body corporate located in taxable territory had availed services of Renting of Motor Vehicle designed to carry passengers even from unregistered person other than a body corporate then such recipient is liable to GST under RCM if not paid till date.

Disclaimer : The contents of this article are solely for information and knowledge purpose and does not constitute any professional advice or recommendation. Author does not accept any kind of liability for any loss or damage of any kind arising out of this information set out in this article and any action taken based thereon.

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