1.Introduction:
Renting of motor vehicles was covered under the ambit of GST under reverse charge mechanism (RCM) from 01-10-2019 vide Notification No. 22/2019-CT(R) dated 30-09-2019, through which the Notification No. 13/2017-CT(R), dated 28-6-2017 was amended by inserting Sl. No 15 in said notification. However the insertion of renting of motor vehicle services for purposes of reverse charge mechanism was made in a confusing manner and many issues were emanating therefrom.
Considering the confusion amongst tax payers and in order to evaporate the doubts, amendment was subsequently made in the Sl. No 15 of Notification No. 13/2017-CT(R), dated 28-6-2017, regarding RCM on renting of motor vehicles vide Notification No. 29/2019- CT (R), dated 31-12-2019. Further clarification in this regard was also issued vide Circular No. 130/2019 dated 31-12-2019. The amendment along with the clarification issued in regard to reverse charge mechanism on renting of motor vehicle, are discussed in the succeeding para’s.
2. Entry regarding coverage of GST on Renting of Motor Vehicles under reverse charge mechanism (RCM)
For ready reference the entries (Sl. No 15 of Notification No. 13/2017-CT(R), dated 28-6-2017) i.e. before amendment and after amendment are reproduced and discussed below:-
2.1 Earlier entry (Inserted vide Notification No. 22/2019-CT(R) dated 30-09-2019).
| Sl. No | Category of Supply of Services | Supplier of Service | Recipient of Service |
| 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 ITC only of input service in the same line of business | Any body corporate located in the taxable territory. |
The above entry was drafted in a confusing manner and thus was amenable to different interpretations. It is welcomed that the Central Government noted the situation and also acknowledged the same in the recent Circular No. 130/2019 dated 31-12-2019 whose para 3 reads as under:
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.
Accordingly the aforesaid entry at Sl. No 15 was later amended and same is discussed in the succeeding para(s).
2.2 Amended entry (vide Notification No. 29/2019- CT (R), dated 31-12-2019).
| Sl. No | Category of Supply of Services | Supplier of Service | Recipient of Service |
| 15. | Services provided 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, provided to a body corporate. | Any person other than a body corporate,who supplies the service to a body corporate and does not issue an invoice charging central tax at the rate of 6% to the service recipient. | Any body corporate located in the taxable territory. |
If we compare the amended entry with earlier entry, the striking differences can be noted in regard to following:-
2.2-1 Category of supply of services subject to RCM
The words “designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient” has been inserted under column 2 viz Category of Supply of Services. This change has been made in accordance to the language used at S.No. 10(i) of Notification No. 11/2017 CT(R) Dt. 28.06.2017 which prescribes the rate of GST for “renting of motor vehicles”.
From above amendment following two issues have been set at rest:-
- Only renting of motor vehicles designed to carry passengers would be subject to GST under RCM
With the amendment it can be appreciated that only renting of motor vehicles designed to carry passengers would be subject to RCM under this entry. Accordingly renting of motor vehicles like road rollers which are not meant to carry passengers will not be subject to reverse charge and will continue to be taxed under forward charge.
2. RCM will not apply where cost of fuel is not included in consideration.
Cases where cost of fuel is not included in consideration will not be subject to reverse charge. E.g Pure rental / finance lease of motor vehicle where cost of fuel is not included in consideration and same is arranged by recipient directly as per the terms of the contract.
2.2-2 Supplier of service for attracting RCM
As per the earlier entry, in order to attract RCM provisions, the non-body corporate supplier should be paying CGST @ 2.50% i.e. total tax @5% with ITC only of input service in same line of business. This condition seems to be fulfilled only if such non body corporate supplier was taking vehicle on rent from other person and paying GST @5% charged thereon and availing ITC thereof being towards same line of business.
Accordingly it appeared that a supplier who supplies his owned vehicle on rent and thus does not pay any GST and thus no question of any ITC of similar line of business,would not be able to satisfy this condition and thuswould have to pay tax under forward charge mechanism.However such a view appeared to be combursome and absurd.
Accordingly it was clarified vide Circular No. 130/2019 dated 31-12-2019 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. 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.
Further above Circular also states 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-CT (R) dated 28-6-17 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% from the service recipient; and
(c) supplies the service to a body corporate.
Whether supplier would include unregistered supplier
Though the column 3 of amended entry viz Supplier of Service, starts from words “Any person” and thus it may appear that RCM provisions may apply in case of supply of renting of motor vehicle services is received from unregistered person. However Circular No. 130/2019 dated 31-12-2019 as discussed above clearly states that there can only be two situations viz supplier charges 12% tax and else does not charge such tax.
Further the Circular at one place stipulates that 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. Considering the above and also the language used in column 3 of amended entry that the supplier does not issue an invoice charging tax @ 12%, and further considering that GTA services have not been notified under Section 9(4) of the CGST Act,2017, it seems that the supplier for the purpose of this entry means a registered person.
Accordingly RCM provisions should not apply in cases where renting of motor vehicles services are supplied by unregistered supplier. However it is suggested that CBIC may issue a clarification in this regard so that any iota of doubt can be evaporated.
3. Situations where GST under reverse charge mechanism (RCM) will be applicable on renting of motor vehicles
After considering the amendment and clarification as discussed supra, it can safely be concluded that all the following four conditions are to be fulfilled in order to trigger reverse charge mechanism on supply of renting of motor vehicle services.
a) Only the services provided to a body corporate located in taxable territory is subjected to RCM
The notification states at two places, that renting of motor vehicle services should be provided to a body corporate in order to trigger reverse charge. One mention of body corporate is there in the column ‘category of supply of services’ and another is in column ‘recipient of service’.
Meaning of Body Corporate
As per Explanation (b) to Notification No. 13/2017-CT(R) dated 28-06-2017, Body Corporate has the same meaning as assigned to it in Section 2(11) of Companies Act, 2013 according to which it includes Companies, Foreign Companies and other organizations which are incorporated under any statute like IDBI, SIDBI etc.
b). Supplier must be a person other than a body Corporate
The notification categorically states that in order to attract RCM provisions, the supplier should be a person other than a body corporate i.e. individual, HUF, firm, LLP, AOP etc. Thus when renting of motor vehicle service is provided by a body corporate, reverse charge would not be applicable. Further as discussed supra, supplier for purpose of this notification should include only registered persons.
c). Non body corporate supplier should not issue an invoice charging CGST @ @6% i.e total tax 12%
As per the amended notification,in order to attract RCM provisions, the non-body corporate supplier should not issue an invoice charging CGST @ 6% i.e. total tax @12%.
The source of this rate of 12% is S.No. 10(i) of Notification No. 11/2017 CT (R) Dated 28.06.2017 which prescribes the rate of GST for “renting of motor vehicles” as under:-
| S.No. | Description | Rate of GST (CGST+SGST) | Conditions |
| (i) | Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient. | 5% | Provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business has not been taken. |
| (ii) | Same as above. | 12% | – |
Thus from above it is evident that a non-body corporate supplier of renting of motor vehicle services can charge GST @ 12% from the recipient and can avail ITC. Further in such cases reverse charge mechanism will not apply. However such a supplier cannot charge tax @5% in its invoice as in such cases RCM provisions will be triggered and tax will be required to be paid by service recipient. In cases tax @5% is wrongly charged by non-body corporate supplier in its invoice, the recipient(Body Corporate) should not pay the tax amount charged to the supplier and rather deposit the tax under reverse charge mechanism.
d). Only renting of motor vehicle (designed to carry passengers) services are subject to reverse charge where cost of fuel is included in consideration
Renting in regard to motor vehicle would mean providing motor vehicle designed to carry passengers to service receiver for consideration for specified period.
As per Section 2(76) of the CGST Act , motor vehicle shall have the meaning as assigned to it in Section 2(28) of Motor Vehicles Act,1988 according to which “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimetres.
As discussed supra, with the amendment only renting of motor vehicles designed to carry passengers would be subject to RCM under this entry. Accordingly renting of motor vehicles like road rollers which are not meant to carry passengers will not be subject to reverse charge. Further cases where cost of fuel is not included in consideration will not be subject to reverse charge. E.g Pure rental / finance lease of motor vehicle where cost of fuel is not included in consideration and same is arranged by recipient directly as per terms of the contract.
Difference between passenger transportation service and Renting of motor vehicle
Reverse charge provisions will not be applicable in case of passenger transportation services. Recently the AAR, West Bengal in Mohana Ghosh [2019] 106 taxmann.com 108 distinguished between Passenger Transportation Service and Renting of Vehicle as follows:
- Passenger Transportation Service: Passenger transportation service is classified under SAC 9964. The recipient of the service is a passenger travelling from one place to another. He may have varying degrees of control over the carriage, providing him with a certain measure of independence in choosing the destination and travel time, depending upon the nature of the contract, explicit or implied. But the supply remains that of transportation of the recipient as a passenger, and the consideration is paid for the distance traveled.
- Renting of Motor Vehicle: Renting of any motor vehicle is classified under SAC 9966. The recipient of this service is not a passenger. He is enjoying the service of having provided a motor vehicle, with or without a driver, for use in whatever way he likes for the duration of the renting period. It may remain parked for the entire duration of renting without actual transportation of any person. Even when any person – the recipient of the service or someone of his choice – is being actually transported, the consideration is paid not for the distance traveled, but for renting the cab.
Thus, in passenger transportation service (SAC 9964) recipient of service is a passenger and he pays consideration for distance traveled, whatever be the degree of control he enjoys over the vehicle. In renting or hiring of a motor vehicle (SAC 9966) the recipient is provided the right to use the vehicle over a specified duration, whether he is a passenger or not. Distance traveled is taken into consideration to recover the cost of fuel. But travelling a certain distance is not the essence of the service.
4. Position of charge of GST on renting of motor vehicles in various situations – At a glance
Based upon discussion in preceding paras, the position in regard charge of tax i.e. reverse charge or forward charge in regard to renting of motor vehicle services, under various situations, is tabulated below:-
| Situation | Supplier | Recipient | Whether RCM applicable | Remarks |
| I | Body Corporate | Body Corporate | NO | Tax to be paid by supplier. |
| II | Non body Corporate | Non body Corporate | NO | Tax to be paid by supplier. |
| III | Body Corporate | Non Body Corporate | NO | Tax to be paid by supplier. |
| IV | Non body Corporate -charging tax @12% in its invoice | Body Corporate | NO | Tax to be paid by supplier. |
| V | Non body Corporate -cost of fuel included in consideration – No tax charged in invoice. | Body Corporate | YES | Tax to be paid under RCM by recipient. |
| VI | Non body Corporate -cost of fuel included in consideration – Tax @ 5% charged in invoice. | Body Corporate | YES | Tax to be paid under RCM. Tax charged @5% in invoice not to be paid by Recipient to to supplier. |
| VII | Non body Corporate -Cost of fuel not included in consideration i.e. arranged by recipient.. | Body Corporate | NO | Tax to be paid by supplier. |
| VIII | Non body Corporate – Unregistered and thus Doesn’t charge any tax | Body Corporate | NO | RCM provisions not applicable as supply not from registered person. Also supplier being unregistered cannot charge tax. |
***
[rainbow]Don’t miss the next GST Update / Article / Judicial pronouncement[/rainbow]
Subscribe to our newsletter from FREE to stay updated on GST Law
Resolve your GST queries from national level experts on GST free of cost.
Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
