New Insight for Renting of a Motor Vehicle under GST on RCM

[Gella Praveenkumar]

The activity “Renting of a Motor Vehicle”has been brought under RCM during September 2019 with a limited compliance requirement under Section 9(3) of CGST Act, 2017. However, Government authorities felt that the compliance requirement under the above entry has been unclear in Trade & Industry, where by they have issued a Circular No.130/2019 dtd:31.12.2019.

There is a scope for the Registered person to understand the compliance requirement in this regard and to augment cost reduction by way of tax planning at the Service provider end. We shall examine this in detail from the following paragraphs, only after if we perceive the intended meaning of the proposed entry in this regard:

Original Entry Notification 22/2019 dtd:30.09.2019:

Service category covered	Service Provider	Service Recipient
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.

New version for the activity of “Renting of a Motor Vehicle” under RCM w.e.f. 31.12.2019 vide Notification No.29/2019 CTR dtd:31.12.2019 inserted for the above entry as below:

Service category covered	Service Provider	Service Recipient
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 per cent. to the service recipient	Any Body corporate located in the taxable territory

Currently there are two category of services which requires more explicitness from the Government authorities for its existence and also under what circumstances those services become mutually exclusive for their operation. First category is “Passenger Transportation service – SAC 9964” and second category  is “Renting service of motor vehicles with operator – SAC 9966”. In general all the Body Corporate have an intent of providing transport facility to their employees from a standard point of alight to the factory and back to such place of origin. Renting of a motor vehicle and passenger transportation have some sort of similarity for their existence

Points to note for compliance in this regard:

• Service provider is other than a Body Corporate i.e., Not constituted  as a Private or Public Limited Company
• Contract cost in relation to “Renting of any motor vehicle” should include “Cost of Fuel”
• The aforementioned motor vehicle which has been rented is “designed to carry Passengers”
• Service provider is not charging GST @12% on the Tax Invoice issued. This could be interepreted as Service Provider is either Registered and Charging GST @12% or not registered under GST at all
• If above points are complied, Recipient of Service who happens to be a Body Corporate has to pay GST @ 5% on account of RCM for the Services received

We shall summarise the applicability of GST on Forward / Reverse charge basis as per below flow charts:

Now we shall examine the tax planning to be made at the Service provider end who is Registered under GST to adopt for charging GST @12% by availing Input Tax credit. An illustration has been made for ease of understanding on some hypothetical circumstances as below:

Comments:

• Renting of Motor vehicle activity should have a contract which includes “cost of fuel”. This ambit of a conditional clause shall push the tax payer’s to undertake re-drafting of their contracts to circumvent the levy of GST under Section 9(3) of CGST Act, 2017
• An ordinary accountant cannot check thoroughly all the above given conditions and do proper compliance under GST and respective accounting entries
• There exists a possible scenario where the employee travels out of station for a business trip and hires a motor vehicle. Assuming the above given conditions are met, Department has to clarify how the GST has to be remitted and how shall such tax be appropriated amongst the respective states if happens to be an Interstate supply. Also, relevant disclosure in the GST returns has to be clarified
• Accounting entries along with compliance under GST law for the above entry for a SME segment, Registered persons is going face a massive compliance cost given the complexity that arise in understanding the conditions laid out and posting the relevant accounting entries

The above Notification has been issued on 31.12.2019 widening the scope and ambit of coverage for the circumstances under which tax needs to be paid on RCM basis. Accordingly, all the bills received for Dec’19 and thereafter we need to pay GST on RCM basis. Though the Circular No.130/2019 issued at para 6 has clarified that the insertion made in Notification 29/2019 dtd: 31.12.2019 is effective from 01.10.2019, we understand that an amendment made to the levy provision has to be prospective and cannot be retrospective in nature