GST Reverse Charge on Renting of Motor Vehicle – Amendment Clarificatory or Expansive!

Reverse charge mechanism on ‘renting of motor vehicle’ service was introduced from October 01, 2019. Since the complex language used in the notification(s) confused many, the Government substituted the reverse charge entry effective December 31, 2019.

To understand the position in law from October 01, 2019 till December 30, 2019, readers may refer the following link: http://vsrca.in/gst/reverse-charge-renting-motor-vehicle/. The current post intends to elucidate the amended entry and assess if it is merely clarificatory in nature (as claimed by the Government) or if the scope is enlarged.

For the sake of clarity, the amended reverse charge entry under Notification No.10/2017-Integrated Tax (Rate) is reproduced herein below:

‘Renting of motor vehicle’ service is covered under two categories: (i) HSN 9966 (Rental services of transport vehicles with operators); and (ii) HSN 9973 (Leasing or rental services without operator). Perusal of Notification No.8/2017-Integrated Tax (Rate) indicates that 12% rate is directly prescribed under HSN 9973 only for transfer or permitting the use or enjoyment of certain intellectual property rights (which is unrelated to the subject matter under discussion). However, GST @ 12% is prescribed under HSN 9966 for the following service:

Renting of motor vehicle, designed to carry passengers, with operator (HSN 9966) is often confused with passenger transport service (HSN 9964). Hence, before proceeding, it is vital to understand the difference laid herein below.

It should also be noted that both the aforesaid supplies are distinct from finance lease (HSN 9971) and rental service without operator (HSN 9973). However, the possibility of mix-up between HSN 9971 / HSN 9973 vis-à-vis HSN 9966 is less.

Another term worth deliberating is “Body Corporate”. Explanation (b) of the Notification No.10/2017-Integrated Tax (Rate) draws the definition of “Body Corporate” from Section 2(11) of the Companies Act, 2013. The latter reads:

“Body Corporate … includes a company incorporated outside India, but does not include- (i) a co-operative society registered under any law relating to co-operative societies; and (ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf;”

A Limited Liability Partnership (LLP) is also a body corporate, with legal entity separate from its partners and has a perpetual succession. However, Explanation (e) of the Notification No.10/2017-Integrated Tax (Rate) explicitly provides that an LLP should be considered as a partnership firm / firm.

Considering the above, a body corporate (for the purpose of reverse charge) covers a domestic company and a foreign company but does not include a registered co-operative society or an LLP. Therefore, to attract reverse charge on renting of motor vehicle, inter alia:

• Supplier should be a non-body corporate (for example, individual / Hindu Undivided Family / firm / LLP / registered co-operative society); and
• Recipient should be a body corporate located in taxable territory (for example, domestic company).

From a combined reading of the reverse charge and relevant tariff entries, if all the following conditions are satisfied, the recipient is liable to pay GST under reverse charge:

1. The supply of service is renting of motor vehicle;
2. The motor vehicle is designed to carry passengers (i.e., the vehicle should be used only for passenger transport, as per the Registration Certificate of the vehicle);
3. Such renting is with operator;
4. The cost of fuel is included in the consideration charged from the recipient;
5. The supplier is not a body corporate;
6. The recipient is a body corporate located in taxable territory; and
7. The supplier does not charge GST @ 12% in the invoice issued for outward supply.

Therefore, assuming conditions (1–4 and 7 listed above) are fulfilled: