Input tax credit on leased passenger cars allowed where vehicles are used for taxable leasing as further supply under GST exceptions.

GST paid on passenger cars acquired for taxable leasing activity was held eligible for input tax credit, because leasing to customers is a taxable "supply" in the course of business and falls within the exception in section 17(5) for vehicles used for further supply. The ruling treated the cars as commercial assets used in a taxable leasing business, while noting that commercial registration is required and that rule 42 applies where relevant. Input tax credit was therefore available on the cars given on lease rent, subject to the stated conditions.

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Issues: Whether GST paid on passenger cars purchased by the applicant and given on lease rent to customers is available as input tax credit under section 17(5) of the Central Goods and Services Tax Act, 2017.

Analysis: The applicant was engaged in taxable leasing activity and the cars were acquired for use in that business. Section 17(5) bars input tax credit on motor vehicles, but expressly permits credit where the vehicles are used for further supply of such vehicles or conveyances. The expression "supply" under section 7(1)(a) includes lease and rental, and the leasing of tax-paid cars to customers for consideration was held to be a taxable supply made in the course of business. On that basis, the activity was treated as falling within the exception for further supply. The ruling also noted that the vehicles must be registered for commercial use and that rule 42 would apply where necessary.

Conclusion: The applicant is entitled to avail input tax credit on the cars supplied on lease rent, subject to the conditions stated in the ruling.

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