RCM on renting of motor vehicle services received by body corporates
There is an obligation to pay GST under the Reverse Charge Mechanism in the case where the services are provided by a non-body corporate to a body corporate by way of renting of any motor vehicle for transport of passengers. In this case, the receiver of services (body-corporate) shall be liable to pay tax under RCM.
However, there was confusion over the applicability of RCM. Therefore, the CBIC was in receipt of representations to clarify whether RCM is applicable on the service of transportation of passengers (Heading 9964) or on renting of motor vehicle designed to carry passengers (Heading 9966). The CBIC vide Circular No. 177/09/2022 dated 3rd August 2022 clarified as follows:
- 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 the 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 Heading 9964 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, as recommended by the GST Council, it is 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 or voyages 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.
