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

[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.

AI Summary

Vehicle hire under tripartite arrangement and whether reverse charge applies when fuel is paid by employee Tripartite car-hire arrangements raise whether reverse charge on renting of passenger motor vehicles applies. The relevant notification applies RCM where a body corporate receives vehicle renting services and the consideration charged includes fuel; because fuel here is borne by the employee and the owner is not a vehicle-rental business, the notifications scope suggests RCM may not be triggered. If the employer effectively receives benefit without consideration under Schedule I, that could constitute a supply treated as between employer and employee, creating GST liability; where the employment contract is silent this remains a factual/legal question. Pure internal accounting adjustments do not by themselves change the tax character of the underlying supply.