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Input tax credit by service receiver under rcm on car hire

Roshani Jain (Employee) (155 Points)

24 February 2015

Dear All,

Please let me know whether a service receiver can avail service tax input credit on Car hire charges, which is paid by him under RCM?

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5 Replies

CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 24 February 2015

Reverse charge in renting or hire of Motor vehicle designed to carry passengers ¨ Reverse charge when renting to a person who is not in similar line of business. ¨ Service Provider should be HUF, Individual, firm ¨ Service receiver – Business entity registered as body corporate ¨ Tax on 40%, if Cenvat credit is not availed by the service provider – No Cenvat credit in most of the cases – hence cost to company. ¨ If motor vehicle is taken on hire (operating lease) without driver, it is ‘transfer of right to goods’. Then it is deemed sale of goods and Vat will apply – not service tax.

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CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 24 February 2015

If the service reciever is a corporate and provider is non-corporate, considering every other factor normal, RCM credit is available to reciever. Conditions change from case to case basis, and if the transaction is normal one, credit cannot be denied in such circumstances.

Roshani Jain (Employee) (155 Points)
Replied 24 February 2015

Hello Ash and Dhiraj,

There is little bit of confusion.

I want to know that if i am a corporate and i am paying service tax on car hire charges on RCM basis so whether i can utilise this payment as input credit for any other payment of service tax on any taxable services ? and if Yes than how much (%) ?

CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 24 February 2015

w.e.f. 01-04-2011, the Central Government has amended the definition of ‘input service’ under Rule 2(l) of Cenvat Credit Rules, 2004 vide Notification No. 3/2011 – CE(NT) dated 01-03-2011 and again vide Notification No. 18/2012 – CE(NT) dated 17-03-2012 (w.e.f. 01-04-2012). The effect of the amendment is that rent-a-cab service has been specifically excluded from the definition of ‘input service’ and hence cenvat credit is generally not available. Cenvat Credit is available only when rent a cab service could be related to a motor vehicle which is capital good for them. In other words, when a motor vehicle designed to carry passengers including their chassis, registered in the name of provider of service, when used for provided output service of- (i) transportation of passengers; or (ii) renting of such motor vehicle; or (iii) imparting motor driving skills, then cenvat credit can be availed