RCM On Renting of Motor Vehicles

As we know that there is the concept of Reverse Charge under GST wherein the recipient is liable for the payment of GST instead of supplier. In this article we are going to discuss the aspects of Reverse Charge Mechanism (RCM) applicability on supply of renting of motor vehicle designed to carry passenger by a person other than a body corporate to a body corporate where the cost of fuel is included.

The Notification No. 13/2017 CT(R) dated 28.06.2017 contains the list of services on which the reverse charge is applicable. Under the said notification the serial number 15 was inserted vide Notification No 22/2019-CT(R) Dt. 30.09.2019 to include the services provided by way of renting of a motor vehicle under RCM w.e.f 01.10.2019. The said serial number 15 is laid down as follows;

However the said serial number 15 was amended vide Notification No. 29/2019-Central Tax (Rate) Dt. 31.12.2019 to include the words “motor vehicle designed to carry passengers where the cost of fuel is included in the consideration”. The said serial number after the amendment is as follows;

Earlier, the term “motor vehicle” covered all types of motor vehicles. But, the revised notification intends to cover only “vehicles that carry passengers”. Thus, as per the revised notification, RCM is applicable only on passenger vehicles. Renting of trucks, JCB, cranes etc., is not covered under RCM.

Further as per above amended serial number 15 of Notification No. 13/2017 CT (R), the RCM is applicable on renting motor vehicles used for carrying passengers if:

The supplier is other than a body corporate. He provides the service to a body corporate. The supplier does not charge 12% GST on the invoice from the service recipient. The same was also clarified in the Circular No. 130/49/2019-GST dated 31.12.2019.

However, the common doubt that usually arises among the taxpayers is that whether the RCM is applicable on service of transportation of passengers (Heading 9964) or on renting of motor vehicle designed to carry passengers (Heading 9966). In this respect it is important to know that there is the difference between passenger transportation service and renting of motor vehicles service. The RCM is applicable only on renting of any motor vehicle designed to carry passengers not on passenger transportation service. In this regard the CBIC has also issued a Circular No. 177/09/2022 dated 03.08.2022. The Para 15 of said circular states that;

“Renting of motor vehicle with operator for transport of passengers falls under Heading 9966. According to the explanatory notes to heading 9966, the service covered here is renting of motor vehicle for transport of passengers for a period of time where the renter defines how and when the vehicles will be operated, determining schedules, routes and other operational considerations.

"Passenger transport services" on the other hand fall under Heading 9964. According to the explanatory notes to heading 9964, this heading covers passenger transport services over pre-determined routes on pre-determined schedules. Therefore, a clear distinction exists in service of transport of passengers and renting of a vehicle that is used for transport.

Accordingly, it was clarified that where the body corporate hires the motor vehicle (for transport of employees etc.) for a period of time, during which the motor vehicle shall be at the disposal of the body corporate, the service would fall under Heading 9966, and the body corporate shall be liable to pay GST on the same under RCM. It may be seen that reverse charge thus would apply on act of renting of vehicles by body corporate and in such a case, it is for the body corporate to use in the manner as it likes subject to agreement with the person providing vehicle on rent.

However, where the body corporate avails the passenger transport service for specific journeys and does not take vehicle on rent for any particular period of time, the service would fall under Heading 9964 and the body corporate shall not be liable to pay GST on the same under RCM”.

Thus from the above para of the Circular No. 177/09/2022 dated 03.08.2022 it is clear that in the service of transportation of passengers,  the passenger has the control over his carriage, like choosing the destination, travel time, etc and such service would fall under SAC 9964. However in case of service of renting of motor vehicles the passenger is not enjoying the transportation service. He is enjoying the service of using a motor vehicle with or without a driver. Here, the consideration is paid for renting the cab and not transportation of the vehicle and accordingly, the RCM would be applicable in this case i.e., renting of motor vehicles designed to carry passengers.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.