RCM on Renting of Motor Vehicle – A Detailed Analysis

RCM on Renting of Motor Vehicle: Prior to 30-09-2019, any supplier including body corporates, supplying ‘Renting of Motor Vehicle services’, where the cost of fuel types part of the factor to consider got, were eligible to pay GST under either of the following alternatives:

  • i. 5% GST (i.e. 2.5% CGST & SGST each or 5% IGST) with constraint on availment of input tax credit on products or services used in providing the stated service, besides input tax credit relating to input service used in the same line of business, i.e., service procured from another service provider providing services of carrying guests in an automobile or leasing of an automobile; or
  • ii. 12% GST with no limitation of ITC

The aforementioned services were earlier taxable under forward charge and service providers were qualified to opt for any of the above alternatives for payment of GST. Also, on arrangement of such services, there was no GST liability under reverse charge system upto 30-09-2019

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However, vide Notification No. 22/2019– CT( R) dated 30-09-2019(reliable from 01-10-2019) by the CBIC, on the recommendations of the GST Council, the above position of law was modified to consist of the following service under the reverse charge classification:

Category of Supply of Services Supplier of service Recipient of Service
Services supplied by way of renting of a motor vehicle offered to a body business. Any individual other than a body corporate, paying central tax at the rate of 2.5% on leasing of motor vehicles with input tax credit only of input service in the same line of business Any body business located in the taxable area.

On a conjunct reading of the above provisions, as modified, it can be said that with impact from 01-10-2019, the service of ‘leasing of automobile’ is covered under reverse charge mechanism supplied all the conditions given below are satisfied:

  • a. Recipient of the service is a body corporate;-LRB-
  • b. Service provider is any person other than body corporate; and
  • c. Service supplier should have been paying tax @ 5% on the stated services upto 30-09-2019

Thus, it is very clear that in a deal of ‘Renting of Motor Vehicles services’, if all the conditions referred here-in-above are pleased, the liability of payment of GST @ 5% has been casted upon the body corporates, as a recipient of such services. It can, for that reason, be presumed that after the reliable date of the above notice, payment of GST under RCM is not envisaged under any other circumstances and does not include illustrative cases as specified below, where:

  • a. Service service providers are body corporates;-LRB-
  • b. Service service providers who fall under besides body corporates classification, but have actually chosen to pay GST @ 12%; and
  • c. Service providers who are not signed up under GST

However, the analogy lies in the truth that the language of the aforesaid change notice was not free from uncertainty and was being misinterpreted due to the use of the words ‘Any individual besides a body corporate, paying main tax at the rate of 2.5%’ for the providers. Such doubts developing thereof, is a result of inaccurate analysis of law, that made it hard for the assessees to follow the aforesaid amendment, therefore rendering the above notice unworkable.

In this connection, thinking about the dominating confusion among the assessees at large and the problem developing thereof, the objective of the legislature has actually been further clarified by way of problem of Notification No. 29/2019- CT( R) dated 31-12-2019 and Circular No. 130/49/2019- GST dated 31- 12-2019 The said amendments were plainly made to clarify the words ‘paying central tax …’ in Notification No. 22/2019(supra) by amending the stated entry to offer that the supplier shall be ‘any person, …, does not release an invoice charging central tax at the rate of 6 per cent to the service recipient’, which provides the same significance, as above, that the category of service providers falling under (ii) are not covered and just service providers falling under (i) above are covered under RCM.

Hence, it can be said that with the above amendment in place, the position of the earlier alert offering applicability of GST under reverse charge system only for that category where GST @ 5% is charged by non-corporate provider to a business services recipient, is still suitable and such position of law ends up being more clear and is without any more confusions.

It might, nevertheless, be noted that the modification, although clarificatory in nature,. The circular issued in this respect has actually attempted to clarify the position and mentions that the intent of the GST Council to include the materials made by suppliers paying GST @ 5% to business entities within the ambit of services taxable under reverse charge. This modification has clearly been brought in to alleviate little and unorganised company and pass the onus on body corporates.

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