Taxability on rent a cab services under GST

[Lokesh Aggarwal]

1. Introductory paragraph of rent a cab services:

You may perhaps be aware that the GST Council in its meeting held on 20.09.2019 at Goa recommended that in the case of registered persons other than body corporate (e.g. proprietorship, HUF or partnership firm) engaged in renting of vehicles and paying 5% GST (without availing ITC), GST should be paid by the recipient of service if it is a body corporate entity. In other words, the services of renting of motor vehicle from non-body corporate entity to body corporate entity is brought under reverse charge mechanism (RCM).

2. RCM is applicable on renting motor vehicles used for carrying passengers if the supplier fulfils the three conditions below:

1. The supplier is other than a body corporate.
2. The service receiver is a body corporate.
3. The supplier does not charge 12% GST on the invoice from the service recipient.

3. Availability of ITC:

RENT A CAB SERVICES

• Outward liability discharged @ 5%, hence no ITC except ITC of same business.
• Outward liability discharged @ 12% with full ITC of gst

4. Interpretation of Law:

1. Renting of motor vehicle was covered under the ambit of reverse charge mechanism 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.

2. Considering the confusion amongst tax payers and in order to evaporate the doubts, amendment has now been 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 has also been 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.

3. As per Notification No. 29/2019-CT(R), dated 31-12-2019 for rent a cab service is given below:

S. No.	Category of service	Supplier of service	Recipient of service
1.	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.

From above amendment following two issues have been set at rest:-

I. Only renting of motor vehicles designed to carry passengers would be subject to 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.

II. 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.

Accordingly it has now been 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–

1. 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,

2. 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. Situations where RCM will be applicable on the renting of motor vehicles is tabulated below:-

S.No.	Supplier	Recipient	Whether RCM applicable	Remarks
1.	Body Corporate	Body Corporate / Non body Corporate	No	Tax to be paid Under FCM by supplier.
2.	Non body Corporate	Non body Corporate	No	Tax to be paid Under FCM @5%,12%
3.	Non body Corporate Charging tax @12% in its invoice	Body Corporate	No	Tax to be paid Under FCM.
4.	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%
5.	Non body Corporate-Cost of fuel not included in consideration i.e. arranged by recipient.	Body Corporate	No	Tax to be paid Under FCM @18%
6.	Non body Corporate – Unregistered and thus Doesn't charge any tax	Body Corporate	Yes	Tax to be paid Under RCM.

6. Concluding remarks of rent a cab services:

By introducing this service in the list of RCM, the supplier has been provided with the option of either charging GST @ 5% or 12%. The supplier on the basis of their convenience can charge GST as both has their pros and cons, if supplier charges GST @ 5% then the supplier cannot claim ITC if not in same line of business and also if the recipient of service is a body corporate then the recipient would be liable to pay tax on RCM basis. Whereas if the supplier charges GST @ 12% then the supplier can avail full input tax credit including that on motor vehicle, subject to conditions.