The Central Board of Indirect Taxes & Customs (“CBIC”) has issued clarification pertaining to Reverse Charge Mechanism (“RCM”) on renting of Motor Vehicles vide Circular No. 130/2019 dated December 31, 2019.
Background:
The GST Council in its 37th meeting dated September 20th, 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 because RCM otherwise would have blocked the ITC chain for them.
Accordingly, the following entry was inserted in the RCM notification with effect from October 1st, 2019 :
|
Serial 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 input tax credit only of input service in the same line of business |
Any body corporate located in the taxable territory |
Post issuance of the notification, references were 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.
Clarification:
CBIC has thus clarified that there are only two rates applicable on the service of renting of vehicles i.e. 5% with limited ITC and 12% with full ITC. Therefore, the notification entry should be interpreted as follows –
- 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,
- 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.
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 – Central Tax (Rate) dated June 28th, 2017 has been amended further vide Notification No. 29/2019 – Central Tax (Rate) dated December 31st, 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:–
(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.
However, it may be noted that the present amendment of the notification is merely clarificatory in nature and therefore for the period October 1st, 2019 to December 31st, 2019 also, clarification given above shall apply, as any other interpretation shall render the RCM notification for the said service unworkable for that period.
Read more at: http://www.cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-130-new.pdf