Renting of Motor Vehicle

1. Analysis of term “Renting of Motor Vehicle”

Renting of Motor vehicle has not been defined under GST. However, we can break the words and interpret the meaning of the term. “Motor Vehicle” has been assigned definition under Motor Vehicles Act, 1988; which is reproduced here for kind reference,

“means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding 1[thirty-five cubic centimeters]”.

It is pertinent to note the following take away from analysis of definition of Motor-vehicle: -

Cabs i.e. Motor Cab, Meter Cab falls under definition of Motor vehicle
Dumper, Tipper, and other such vehicles are not in purview of Motor vehicles

It is quite relevant at this stage to understand the difference between “Renting of Motor Vehicle” & “Transportation of Passenger”. The following tabular presentation would highlight key difference among these terms.

Sr. Particulars Transportation of Passenger Renting of Motor Vehicle

No.

1 Classification 9964 9966

2. Recipient Recipient of the service is a passenger Recipient of the service is not a passenger

3 Billing Basis Billing will be done to passenger on the Billing will be done to passenger irrespective basis of distance travelled. of distance travelled.

It is renting of motor vehicle which has been critically analyzed in this article.

2. Analysis of Taxability of Renting of Motor Vehicle Service under GST Regime

Renting of Motor Vehicle service can be very well categorized into 2 phases in GST Regime viz.

w.e.f. 1st July, 2017 to 30th September, 2019

Option 1: - Pay Tax @ 5% (only avail ITC on input service of same line of business) – FCM* (Notification 11/2017 – CTR)

Option 2: - Pay Tax @ 12% (without ITC Restriction) – FCM* (Notification 11/2017 – CTR)

*Forward Charge Mechanism

w.e.f. 1 st October

Supplier following Option 1 :- (other than Body corporate) to Body corporate – RCM (Notification 22/2019 – CTR r/w S. 9(3) of CGST Act)

2.1 Taxability of Renting of Motor vehicle from 1st July, 2017 to 30th September, 2019

In GST Regime i.e. w.e.f. 1st July, 2017 to 30th September, 2019 as per Sr. No. 10 of Notification 11/2017 – CTR dated 28th June, 2017 any supplier (including body corporates), providing ‘Renting of Motor Vehicle services’, (where the cost of fuel forms part of the consideration received) were given two option to pay GST which are as below:

(i) 5% GST (i.e. 2.5% CGST & SGST each or 5% IGST) with restriction on availment of input tax credit on goods or services used in supplying the said service, except where input tax credit paid on services availed in the same line of business (hereinafter referred to “Option 1”) (i.e. only ITC on input service of same line of business is allowed)

(ii) 12% GST with no restriction of ITC (hereinafter referred to “Option 2”) The aforesaid services were earlier taxable under Forward Charge.

2.2 Taxability of Renting of Motor vehicle w.e.f. 1st October, 2019

GST Council in its meeting held on 20th September, 2019 at Goa, recommended that where the supplier (other than body corporate) is following Option 1 (as mentioned in Para 2.1) prior to 1st October, 2019 and supplying such services to body corporate on or after 1st October, 2019; such transaction would be brought to tax net under reverse charge mechanism. Thus, in such a case body corporate would be liable to pay tax under reverse charge mechanism.

It would be considerable to note here that other mechanism to pay tax as available to supplier prior to 1st October, 2019 would remain unchanged.

In order to give effect to this recommendation, the Central government issued Notification No.22/2019-CT (R) dated 30th September, 2019 thereby inserting Entry Number 15 in the RCM principal notification (Notification No. 13/2017-CT (R) dated 28.06.2017). The said entry is reproduced below for ready reference: -

Thus, it is very clear that if supplier (other than Body corporate) had opted for option 1, and supplying services to body corporate; body corporate would be liable to pay GST @ 5% as a recipient of such services. However, he can continue to charge 5% GST on services supplied to non-corporate clients.

It would be worth-while to analyse the term body corporate. The term Body Corporate is not defined in GST Act. But as per section 2(11) of Companies Act, 2013, ‘Body Corporate’ or ‘corporation’ includes a company incorporated outside India, but does NOT INCLUDE –

-> A co-operative society registered under any law relating to co-operative societies; and

-> Any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf.

In pursuance to Notification No. 22/2017- Central Tax (Rate), CBIC has removed confusion and made it very clear that LLP shall be considered as Partnership Firm and not body corporate.

The language of the Notification 22/2019 – CT (R) was ambiguous and was being misread by trade and industry due to the usage of the words “Any person other than a body corporate, paying central tax at the rate of 2.5%”.

Such doubts arising thereof, is a result of incorrect interpretation of law, which made it difficult for the assesses to follow the aforesaid amendment, thus rendering the above notification unworkable. However, trade & industry failed to give a thought to nature of services rendered under RCM. RCM is only attracted where services are provided to corporate entities. Supplier would be still liable to discharge 5% tax (FCM) on supply of such services to non-corporate entities. Nonetheless, CBIC came up with circulars to explain this point and ensure smooth implementation of this entry.

To remove the anomalies, Central Government issued Notification No. 29/2019 Dated 31st December, 2019 which was clarificatory in nature and was effective from 1st October, 2019 itself. In the said notification, in the Table, for Serial Number 15 and the entries relating thereto, the following shall be substituted, namely: -

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