CBIC issues Clarification on Application of RCM on Renting of Motor Vehicles [Read Circular]

Application of RCM - GST RCM - Reverse Charge Mechanism

The Central Board of Indirect Taxes and Customs ( CBIC ) has issued a clarification on the subject of the application of Reverse Charge Mechanism ( RCM ) on renting of motor vehicles.

The GST Council in its 37th meeting dated 20.09.2019 examined the request to place the supply of renting of motor vehicles under RCM and recommended that the said supply when provided by suppliers paying GST @ 5% to corporate entities, may be placed under RCM. Post introduction of the concept of RCM and the use of words “any person other than a body corporate, paying central tax at the rate of 2.5%” in the entry introduced created a greater ambiguity in the interpretation of the same.

The possible interpretation of the previous entry was:

  • 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,
  • 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.

A case falling under (ii) above i.e. where a supplier providing the service to a body corporate under the application of RCM may still be paying GST @ 5% on the services supplied to other non-body corporate clients relying upon the interpretation of “any person other than a body corporate” on whom the entry was initially made applicable.

In order to provide clarification to the above entry, the following have been introduced, the fulfilment of which shall make the RCM applicable. It shall be applicable where 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 only if the supplier shall fulfil all the following conditions:–

  • is other than a body corporate;
  • does not issue an invoice charging GST @12% from the service recipient; and
  • supplies the service to a body corporate.
Subscribe Taxscan AdFree to view the Judgment

Related Stories