GST Query – RCM on Vehicle Hiring under Tripartite Arrangement

[NYAYASETU LEGAL ASSOCIATES LLP]

Hi,

We have a tripartite arrangement between: The Company, The Employee and a Third Party (generally a relative of the employee)

Under this arrangement, a car is purchased in the name of the relative (whose taxable income falls in a lower income-tax slab). The relative charges hire charges to the company for use of the vehicle. Such vehicle is used by company employee for both official and personal purpose and petrol cost is also borne by such employee. The company deducts such hire charges from a miscellaneous allowance payable to the employee. The hire charges are accounted for in the During GST audit, the department is questioning non-payment of GST under RCM on the ground that the transaction amounts to renting of a motor vehicle designed to carry passengers.

Queries:

1. Whether GST under RCM is applicable in such a tripartite arrangement where:

   The vehicle is owned by a third party (relative of employee)- URP,
   Hire charges are adjusted against employee allowances without disclosing on the face anywhere and
   The third party is not engaged in the business of vehicle renting?

2. If the employment contract is silent on this arrangement, can the transaction be treated as a supply between employer and employee under Schedule I of the CGST Act (supply without consideration)?

3. Does the mere accounting adjustment against employee allowance alter the GST implications?

Request insights, judicial precedents, or departmental clarifications on this issue.

[VIPUL JHAVERI]

CAR HIRE RCM IS covered VIDE 

Notification No. 29/2019-CentralTax (Rate) New Delhi, the 31stDecember,2019

( https://taxinformation.cbic.gov.in/view-pdf/1000898/ENG/Notifications)

"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"

In above case it mentions "fuel cost is borne by employee" and is not charged by car owner -
so seems RCM gets escaped

[NYAYASETU LEGAL ASSOCIATES LLP]

Thanks for giving your time and valuable response thats help us alot.

[Shilpi Jain]

Additionally, there was a circular which has mentioned that perquisites are not liable to GST. See if this could be of any help.

[NYAYASETU LEGAL ASSOCIATES LLP]

Thanks for giving your time and valuable response thats help us alot.

[VENU K]

Since the demand is for RCM under renting of motor vehicle you can give a reply that RCM is not applicable 

Since the cost of fuel is not included in the consideration charged by the third party from the Company, the specific RCM notification for renting of motor vehicles (Sl. No. 15 of Notification No. 13/2017-CT (Rate) as amended) would not be applicable.

Dont complicate the issue by going into Schedule I and exemptions etc unnecessarily.

[NYAYASETU LEGAL ASSOCIATES LLP]

Noted! we will keep in Mind. Thanks for giving your time and valuable response thats help us alot.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

In my opinion, the hiring charges paid by the Company on behalf of the Employee to the third party constitute a supply of service to the employee by the Company and is taxable if it is not agreed perquisites. Miscellaneous allowance may be treated as a misclassification.

AI Summary

Tripartite vehicle hire arrangement may not attract RCM where fuel cost is borne by the employee, not charged to employer. RCM on renting motor vehicles applies where the consideration charged to a body corporate includes fuel cost; if fuel is borne by the employee and not charged by the vehicle owner to the company, the RCM notification condition is not met and RCM will not apply. Account adjustments against employee allowances or non-disclosure on records do not alone transform the transaction into an RCM-triggering supply, though a separate view exists that company payment could be a taxable supply to the employee if treated as a perquisite.