Input Tax Credit on demo vehicles for marketing & sales promotion allowed as Capital Goods under GST

The ruling under section 98 of the CGST/GGST Act, 2017 concluded that Input Tax Credit on Motor Vehicles purchased for demonstration purposes can be availed as credit on Capital Goods and set off against output tax payable under GST. The applicant was deemed eligible for input tax credit on demo vehicles used for marketing and sales promotion, as they qualify as capital goods used in the course or furtherance of business.

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Issues:
1. Whether Input Tax Credit on the Motor Vehicle purchased for demonstration purpose can be availed as credit on Capital Goods and set off against output tax payable under GST.

Analysis:
The application was filed under section 97 of the Goa Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Act, 2017 by a Private Limited Company seeking an Advance Ruling regarding the Input Tax Credit on Motor Vehicles purchased for demonstration purposes. The applicant, an authorized dealer for vehicle manufacturers, purchases vehicles for demo purposes to provide trial runs to customers for marketing and sales promotion. These demo vehicles are held for a specific period and then sold, with applicable GST paid on the selling price.

During the hearing, it was highlighted that as per section 16(1) of the GST Act, every person is entitled to take input tax credit on goods or services used in the course or furtherance of business. The vehicles purchased by the applicant are capitalized in their books of accounts and used for demo purposes, making them eligible for input tax credit as capital goods under section 2(19) of the GST Act.

Section 17(5) of the GST Act restricts input tax credit on motor vehicles unless they are used for specific purposes like making taxable supplies, transportation of goods/passengers, or imparting training. However, in this case, the demo vehicles are used temporarily for marketing purposes and later sold, making them eligible for input tax credit. The provision of section 17(5) does not apply as the time for further supply is not specified.

The ruling under section 98 of the CGST/GGST Act, 2017 concluded that Input Tax Credit on Motor Vehicles purchased for demonstration purposes can be availed as credit on Capital Goods and set off against output tax payable under GST. The applicant was deemed eligible for input tax credit on demo vehicles used for marketing and sales promotion, as they qualify as capital goods used in the course or furtherance of business.

This detailed analysis of the judgment provides a comprehensive understanding of the legal interpretation and application of input tax credit rules regarding motor vehicles purchased for demonstration purposes under the GST Act.

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