One cannot deny that issues concerning motor vehicle have always been prone to litigation under GST.
Whether it be the availment of credit on purchase of motor vehicle, or credit of insurance, repair etc of motor vehicle or the credit pertaining to renting of motor vehicle, it would not be over emphasizing to say that it makes us keep wearing our thinking hats.
This article throws light on GST implications on renting of motor vehicle. As an author, I would like to begin with a caveat, that there are questions related to the topic, to which I am still looking for answers. This article attempts to dig deep into many such issues.
The word motor vehicle or renting of a motor vehicle is defined under section 2(76) of the CGST Act as having the same meaning as provided under section 2(28) of the Motor Vehicles Act, 1988. Reference the said section, a motor vehicle means “any mechanically propelled vehicle used on roads but does not include a vehicle running on fixed rails or a special vehicle used in a factory or an enclosed premises having less than four wheels with engine capacity not exceeding 25 cubic centimetres.”
It may further be noted that the term ‘renting of motor vehicle’ has not been defined under the GST Act. Literally speaking, one may infer that Renting a motor vehicle means the right to use the vehicle for a specific duration. Hence, the essence of service is renting a motor vehicle and not transportation of passengers.
The GST Council in its 37th council meeting dated 20/09/2019 examined the request to place supply of renting of motor vehicles under reverse charge mechanism (‘RCM’). Notification 22/2019-CT (R ) dated 30/09/2019 amending notification 13/2017-CT (R ) dated 28/06/2017 notified provisions of reverse charge applicability on supply of services provided by way of renting of motor vehicle provided to a body corporate.
Subsequently, notification 29/2019-CT (R ) dated 31/12/2019 replaced the word motor vehicle with “motor vehicle designed to carry passengers”. Earlier, the term “motor vehicle” covered all types of motor vehicles. The revised notification intends to cover only “vehicles that carry passengers”. Hence a logical deduction of the notification would be that reverse charge mechanism applies only to passenger vehicles. Renting of trucks, JCB, cranes etc., not being passenger vehicles will not all within the ambit of reverse charge mechanism.
Reference circular 130/49/2019-GST dated 31/12/2019, clarification was issued to clarify that:
When any service is placed under RCM, the supplier shall not charge any tax from the service recipient as this is the settled procedure in law under RCM. There are only two rates applicable on the service of renting of vehicles, 5% with limited ITC and 12% with full ITC. This implies that:
(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; and,
(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.
It further clarified that though a supplier providing the service to a body corporate under RCM may still be paying GST @ 5% on the services supplied to other non-body corporate clients, to bring in greater clarity, serial No. 15 of the notification No. 13/2017-C.T. (R), dated 28-6-2019 has been amended vide notification No. 29/2019-C.T. (R), dated 31-12-2019 to state 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, viz.:
(a) is other than a body-corporate;
(b) does not issue an invoice charging GST @ 12% (6% CGST + 6% SGST) from the service recipient; and
(c) supplies the service to a body corporate.
A logical interpretation of the above could be tabulated as under:
|ABC Travel (non Body Corporate)||XYZ Ltd. (Body Corporate)||5%||Yes|
|ABC Travel (non Body Corporate)||PQR (non Body Corporate)||12% – with full ITC
5% – with limited ITC
|ABC Ltd. (Body Corporate)||XYZ Ltd. (Body Corporate)||12% – with full ITC
5% – with limited ITC
|ABC Ltd. (Body Corporate)||PQR (non Body Corporate)||–||No|
|123 Travel (not registered under GST)||XYZ Ltd. (Body Corporate)||–||Yes|
|123 Travel (not registered under GST)||Other than a Body Corporate||–||No|
|ABC Travel (non Body Corporate)||XYZ Ltd. (Body Corporate)||12%||No|
A few issues:
A question may arise whether ABC Travel being a non body corporate can charge a rate of 12% on renting of motor vehicle to XYZ Ltd., being a body corporate. The notification 29/2019 (supra) mentions explicitly the conditions to be satisfied for reverse charge to apply. However, it no where implies that a non body corporate supplier cannot charge 12% on services of renting of motor vehicle supplied to a body corporate service receiver.
Hence, if a service provider, being a non body corporate charges 12% to a body corporate service receiver, a question may arise whether such a service provider can charge different rate of 12% or 5% to different service receivers. If the answer to this is not in affirmative, the next logical question which will arise is how will a service receiver figure out what rate of tax has its service provider charged to its other body corporate service receiver clients.
Further, the story of if and buts does not end here. Imagine the plight of a service provider, being a non body corporate who wishes to charge 12% to s body corporate client. The latter, in all likelihood, refuse to accept a bill with a rate of 12%. The input tax credit on renting of passenger motor vehicle is blocked under section 17(5) of the CGST Act unless under a few specified circumstances. Hence, a service receiver will take a hit of 7% (12%-5%) incase it was to accept a bill with GST @ 12%. This is a quandary of sorts.
(views expressed are strictly personal)