2018 (10) TMI 1873 - AAR - GST

Unit denied Input Tax Credit on motor vehicles due to Section 17(5) restrictions

The authority ruled that the applicant, a unit of a motor vehicle company, is not entitled to avail Input Tax Credit (ITC) on motor vehicles received for ... Eligibility of input tax credit - Use in the course or furtherance of business - Restriction on input tax credit in respect of motor vehicles - Non-obstante clause in Section 17(5) - Input tax credit on inter-unit stock transfers - Input tax credit on capital goodsEligibility of input tax credit - Restriction on input tax credit in respect of motor vehicles - Non-obstante clause in Section 17(5) - Input tax credit on inter-unit stock transfers - Entitlement to avail input tax credit of IGST and Compensation Cess on motor vehicles received on stock-transfer and used for limited specified business purposes before onward sale to authorised dealers - HELD THAT: - The Authority examined the claim against the eligibility conditions in Section 16(1) of the CGST Act (use or intended use in the course or furtherance of business) and the specific restrictions in Section 17(5) which exclude input tax credit in respect of motor vehicles except in specified situations (further supply of such vehicles, transportation of passengers, imparting training on driving etc., or transportation of goods). The applicant contended that the vehicles are used in the course of business (marketing, sales, press and training) and are ultimately further supplied to dealers after limited use, and undertook not to claim depreciation on the tax component. The jurisdictional officer drew attention to the fact that the vehicles were capitalised in the applicant's books and submitted that the purchases were not for the purposes expressly authorised in Section 17(5). Given that Section 17(5) begins with a non-obstante clause, its specific restrictions prevail over the general entitlement under Section 16(1). Applying this determinative legal principle, the Authority found that the conditions in Section 17(5) for allowing ITC in respect of motor vehicles were not satisfied on the facts and therefore the applicant is not entitled to claim input tax credit on the vehicles in question. [Paras 15, 16, 17, 18]Applicant is not entitled to avail input tax credit of IGST and Compensation Cess on the motor vehicles used as described and received on stock-transfer.Final Conclusion: The Advance Ruling holds that, because the specific exclusion in Section 17(5) applies and its conditions are not met on the facts, the applicant cannot claim input tax credit on the motor vehicles received on stock-transfer and used for the stated purposes prior to onward sale to dealers. Issues Involved:1. Eligibility to avail Input Tax Credit (ITC) on IGST and Compensation Cess paid on motor vehicles received on stock-transfer basis.2. Compliance with conditions under Section 16 and Section 17(5) of the CGST Act, 2017.Issue-wise Detailed Analysis:1. Eligibility to Avail ITC on IGST and Compensation Cess:The applicant, a unit of BMW India, sought to determine whether it could avail ITC on IGST and Compensation Cess paid on motor vehicles received from its Chennai unit for specified business activities, such as marketing, sales, press, and training purposes, before their onward supply to authorized dealers.The applicant argued that these vehicles are used 'in the course or furtherance of business' and are subsequently sold to dealers after limited use. They emphasized that these vehicles are capitalized due to accounting standards and Income Tax laws but are intended for further sale, thus qualifying for ITC under Section 16 of the CGST Act.2. Compliance with Conditions under Section 16 and Section 17(5) of the CGST Act:Section 16(1) of the CGST Act allows ITC on goods used in the course or furtherance of business, provided procedural requirements such as having a tax invoice are met. Section 16(3) stipulates that ITC cannot be claimed if depreciation is claimed on the tax component of the cost of capital goods.Section 17(5) specifically restricts ITC on motor vehicles unless used for certain taxable supplies, such as further supply of vehicles, transportation of passengers, or training on driving. The applicant contended that their use of vehicles for marketing, sales, press, and training purposes falls within these specified taxable supplies, thus making them eligible for ITC.Authority's Findings:The authority noted that demonstration vehicles are essential for sales promotion in the motor vehicle industry. These vehicles, received against tax invoices and reflected as capital assets, are used for a limited period before being sold, with applicable taxes paid at the time of sale.However, the authority emphasized that Section 17(5) of the CGST Act, which contains a non obstante clause, overrides general provisions and restricts ITC on motor vehicles unless used for specified purposes. The applicant's vehicles, used for marketing, sales, press, and training, do not fall under these specified purposes as per Section 17(5).Ruling:The authority concluded that the applicant is not entitled to avail ITC on motor vehicles used as per their submissions. The vehicles, although used in business activities, do not meet the conditions under Section 17(5) for availing ITC.Conclusion:The applicant's request to avail ITC on IGST and Compensation Cess paid on motor vehicles received on stock-transfer basis for specified business activities was denied. The ruling emphasized compliance with Section 17(5) of the CGST Act, which restricts ITC on motor vehicles unless used for specified taxable supplies.