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Renting of motor vehicle - GST on RCM basis - clarity required

 

OCTOBER 07, 2019

By S Narayanan, Advocate

SERIAL No. 15 has been newly inserted in the RCM notification 13/2017-CTR by the amending Notification No. 22/2019–CTR effective 01.10.2019.

Table

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.

Issue Involved:

AS the said Notification is qualified, it appears that not all the services of renting of motor vehicle sourced from Non body Corporates will be covered under RCM at the hands of Body Corporates (located in taxable territory), but RCM will be applicable and restricted to only those services sourced by Body Corporates from -

-  Such persons (other than body corporates), who procures such services from any other person ( i.e third party), who is in the same line of business and,

-  Therefore avails ITC credit of tax charged by third party and then charges 2.5 % ( 5 % in total ) tax.

-  Which means RCM is not applicable to such Body Corporates sourcing services from any registered person (other than Body Corporate), who is not taking the services from 3rd party and charges 5 % tax (without availing ITC credit).

-  Otherwise the impact is that not only 5 % tax charged by registered person (other than Body Corporate) who source the services from 3 rd party becomes the cost, but further 5 % RCM required to be paid will be an added cost, as no ITC credit on rent a cab is available, as it is covered by negative clause u/s 17 (5) of CGST Act, 2017.

Suggestion:

Practically speaking, the amendment is not only complex but it is also very difficult to implement as nobody can track these conditions of Notification, when such services are sourced. Hence, CBIC may consider looking into the above and clarify the correctness of the above possible interpretation which emerges and, if need be, make a simple amendment to qualify that Body Corporate will be accountable for payment of GST on renting of motor vehicle, when sourced from Non Body Corporate and that Non Body corporate do not charge any tax when services are supplied to Body Corporates.

Since the cost has a bearing to the business, ITC credit needs to be allowed when the said Rent-a-cab services are used for making taxable supplies.

(The views expressed are strictly personal.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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