Reverse
Charge Mechanism (RCM) on Renting of Motor Vehicles
·
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
[CGST Circular No. 130 dated 31st
December 2019]
Subject– Reverse
Charge
Mechanism (RCM) on renting of
motor vehicles.
Suppliers of 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 have an option to pay GST either at 5% with limited ITC (of input services in the same line of business) or
12% with full ITC.
2.
The GST Council in its 37th meeting dated 20.09.2019 examined the request to place the
supply of renting of motor vehicles under RCM and recommended that the said supply when
provided by suppliers paying GST @ 5% to corporate entities may
be placed under RCM. RCM was not recommended for suppliers paying GST @12% with full ITC, so that they may have the
option to continue to avail ITC. RCM otherwise would have blocked the ITC chain for them.
Accordingly,
the following entry was inserted in the RCM notification with effect
from 1.10.19:
|
Sl.
No. |
Category
of Supply of Services |
Supplier of service |
Recipient
of Service |
|
(1) |
(2) |
(3) |
(4) |
|
15 |
Services
provided by way of renting of a
motor vehicle provided to a body corporate. |
Any person
other than a body corporate, paying central tax at the rate of 2.5% 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. Post issuance of the notification, references
have
been received
stating that when
a service is covered by RCM, GST would be paid by the service recipient and not by the supplier.
Therefore, the wording of the notification that “any
person other than a body
corporate, paying
central tax at the rate of 2.5%” is not free from doubt and needs amendment/ clarification from
the perspective of
drafting.
4.
The matter has been examined. 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. The only interpretation of the notification entry
in question which is not
absurd would be 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.
5.
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-CT (R) dated 28.6.19 has been
amended vide notification No. 29/2019-CT (R) dated 31.12.19 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:–
(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.
6.
It
may be noted that the present amendment of the notification is merely clarificatory in
nature and therefore for the period 01.10.2019
to 30.12.2019 also, clarification given at para 5 above shall apply, as any
other
interpretation
shall render the RCM notification for the said
service unworkable for that
period which is not permissible in
law.
7.
Difficulty if any, in the implementation of this Circular may be brought to the notice of
the Board.