JANUARY 07, 2020

By Manoj Sharma, AVP (Commercial), Greenlam Industries Ltd.

CBIC has issued Notification No. 29/2019-Central Tax (Rate) dated 31st December 2019 to make amendments in the notification No. 13/2017-Central Tax (Rate), dated the 28th June, 2017 and followed it with and CBIC Circular No. 130/49/2019-GST.

Taxpayers have following alternatives available while making payment of GST on supply of service by way of renting of any motor vehicle, which is designed to carry passengers and where the cost of fuel is included in the consideration:

i) GST @ 5% with limited Input Tax Credit of input services in the same line of business, if any.

ii) GST @ 12% with full Input Tax Credit.

Notification No. 22/2019-Central Tax dated September 30, 2019 introduced Reverse charge on rent-a-cab services only in case of the first of the above options, where the suppliers were paying GST @ 5%, where recipient of the service is a body corporate.

Reverse charge GST was not applicable in case for suppliers paying GST @12% with full ITC. This was to enable them to continue to avail ITC or else, reverse charge would have blocked the ITC chain for such suppliers.

Subsequently, various representations were submitted stating that when a service is covered by reverse charge mechanism, GST should be paid by the service recipient and not by the supplier. Clarification was requested on the original entry "any person other than a body corporate, paying central tax at the rate of 2.5%".

Above circular clarifies the following:

A supplier providing services to a recipient who is not a body corporate will be liable to pay GST @ 5% on the services supplied as this will not be covered under reverse charge.

Therefore, the reverse charge entry has been further amended for the sake of greater clarity to state that in case of 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, reverse charge shall be applicable, provided that the supplier is fulfilling all the following conditions:

(a) The suppler is other than a body-corporate;

(b) The supplier does not issue an invoice charging GST @12% (6% CGST + 6% SGST) to the service recipient; and

(c) The supplier supplies the services to a body corporate.

For ready reference, extracts of both the original and amended entries have been reproduced (deletions in strike through, and additions in bold italics):

The Circular thankfully also clarifies that the present amendment is merely clarificatory in nature and, therefore, the above clarification shall be applicable from the initial date of implementation of RCM on the above service i.e. for the period from 1 October 2019 onwards.

The above notification and circular together puts to rest the doubts and concerns of the taxpayers.

[The author is also Convener Taxation, Baddi Barotiwala Nalagarh Industrial Association, Himachal Pradesh (BBNIA). The views expressed are strictly personal.]