RCM on renting of motor vehicles.

Circular No.: 130/2019
Date of Circular: (Date not specified in draft)
Relevant Sections and Rules:

• Central GST Act, 2017:
  • Section 9(3): Reverse Charge Mechanism
• CGST Rules, 2017: Not specifically cited
• Relevant Notifications:
  • Notification No. 13/2017-CT (Rate) dated 28.06.2017
  • Amended by Notification No. 29/2019-CT (Rate) dated 31.12.2019
• GST Council Reference: 37th GST Council Meeting dated 20.09.2019

Summary of Circular:

The circular addresses ambiguities in the application of Reverse Charge Mechanism (RCM) on services of renting of motor vehicles, particularly when supplied to body corporates.

1. RCM Applicability Background:
   Suppliers renting passenger motor vehicles (fuel cost included) could pay GST either:
   • At 5% (with limited ITC), or
   • At 12% (with full ITC).
     Based on the 37th GST Council recommendation, RCM was applied only when service providers:
   • Pay GST at 5%, and
   • Provide services to body corporates.
2. Drafting Ambiguity Resolved:
   The language “any person other than a body corporate, paying central tax at the rate of 2.5%” in the original notification led to confusion. The clarification affirms that:
   • If the supplier charges 12%, RCM does not apply.
   • If the supplier does not charge 12% (i.e., opts for 5%), RCM does apply.
3. Conditions for RCM on Motor Vehicle Renting (from 1.10.2019):
   As per the amendment in Notification No. 13/2017 (via Notification No. 29/2019):
   RCM applies only when the supplier:
   • Is not a body corporate,
   • Does not issue invoice charging GST @ 12%, and
   • Supplies service to a body corporate.
4. Clarificatory Nature and Retrospective Applicability:
   The circular affirms that the amendment is clarificatory and applies even to the period from 01.10.2019 to 31.12.2019, ensuring uniform interpretation and enforceability.

Source: Circular No.: 130/2019