GST under reverse charge

[Kaustubh Karandikar]

XYZ (Proprietor) is providing bus service for transporting employees of PQR Ltd. (Body Corporate). XYZ (Proprietor) also supplying Motor Cars for the employees of PQR (Ltd.) for their official work of the company and not charging 12% (6% + 6%) GST in both the cases. Is under both the situations, PQR Ltd. (Body Corporate) is required to pay GST under reverse charge? If yes, whether once it is paid, PQR can claim ITC of the same?

[Padmanathan KV]

As per Notification No. 13/2017 - Central Tax (Rate) dated 28-06-2017 as amended by Notification No.22/2019 Central Tax (Rate) dated 30-09-2019 and Notification No.29/2019 Central Tax (Rate) dated 31-12-2019, the following services shall be taxable on RCM by body corporate:

Services provided 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, provided to a body corporate.

Therefore in both cases, PQR ltd shall be liable to pay GST on RCM basis in case the consideration paid to XYZ is inclusive of cost of fuel.

Regarding second part of the query, in my opinion ITC of bus rented can be claimed, though it is not free from litigation. There is a ruling of Maharashtra AAR in Tata Motors and Kerala AAR in Malabar Cements - 2022 (8) TMI 1236 - AUTHORITY FOR ADVANCE RULING, KERALA, wherein it was held that ITC was available for bus (after the amendment to 17(5)(a) wef 01-02-2019). On the other hand, ITC of motor cars rented cannot be claimed due to 17(5)(b).

[Kaustubh Karandikar]

Thanks Padmanathan sir for your kind advice.

AI Summary

Reverse charge mechanism applies where corporates hire passenger vehicles with fuel included; recipient must pay GST, ITC limited. Services of renting motor vehicles designed to carry passengers provided to a body corporate are taxable on the reverse charge mechanism where the supplier's consideration includes the cost of fuel, making the corporate recipient liable to pay GST. Input tax credit on rented buses has been held available in some advance rulings post-amendment, though contested, while input tax credit on rented motor cars is excluded and cannot be claimed.