2019 (7) TMI 844 - AAR - GST

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 ... Input Tax Credit - Capital goods - Use in the course or furtherance of business - Section 17(5) motor vehicle exception - Reversal on supply of capital goods under Section 18(6) - Taxable supply includes further supply of such vehiclesInput Tax Credit - Capital goods - Use in the course or furtherance of business - Section 17(5) motor vehicle exception - Taxable supply includes further supply of such vehicles - Reversal on supply of capital goods under Section 18(6) - 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. - HELD THAT: - The applicant purchases motor vehicles against tax invoices, capitalises them in its books and uses them as demo cars to promote sale, a use falling within the course or furtherance of business. The exemption in the motor-vehicle rule in Section 17(5) motor vehicle exception does not preclude credit where the vehicles are used for making a taxable supply (including subsequent sale of the demo vehicles). The GST law does not prescribe a time-limit within which such further supply must occur; consequently, mere temporary use as demo vehicles does not disentitle the applicant from claiming input tax credit where the vehicles are capital goods used in the business and are later sold with applicable GST paid. The availability of credit remains subject to compliance with the adjustment mechanism applicable on transfer of capital goods, namely the reversal/calculation under Reversal on supply of capital goods under Section 18(6), which governs payment of an amount equal to input tax credit reduced by prescribed percentage or tax on transaction value, whichever is higher.Input Tax Credit on demo motor vehicles, capitalised and used in the business, is admissible and may be set off, subject to adjustment under the provision governing supply of capital goods.Final Conclusion: The Authority rules that the applicant may avail input tax credit on motor vehicles purchased for demonstration purposes as credit on capital goods and set it off against output tax payable, subject to the reversal/adjustment requirements applicable on supply of capital goods. 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.