Applicant entitled to Input Tax Credit on demo vehicles under GST Act

The authority concluded that the applicant is entitled to avail Input Tax Credit (ITC) on the inward supply of motor vehicles used for demonstration purposes and can utilize the ITC for payment of output tax payable under the GST Act. The applicant's demo vehicles, essential for their business and capitalized in their books, qualify as capital goods under Section 2(19) and meet the criteria for ITC under Section 17(5) as they are eventually sold, making further supplies. The order allows the applicant to avail ITC and use it for payment of output tax.

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Issues Involved:
1. Eligibility to avail Input Tax Credit (ITC) on inward supply of motor vehicles used for demonstration purposes.
2. Utilization of such ITC for payment of output tax payable under the GST Act.

Issue-wise Detailed Analysis:

1. Eligibility to Avail Input Tax Credit (ITC):

The applicant, an authorized dealer for Maruti Suzuki India Limited, purchases motor vehicles for demonstration purposes, which are capitalized in their books of accounts as capital goods. They neither claim depreciation on the GST component of these demo cars nor claim it as business expenditure under Section 37 of the Income Tax Act. These demo vehicles are used for trial runs by customers to understand vehicle features, which is essential for marketing and sales promotion. The vehicles are replaced every two years or 40,000 kilometers, whichever is earlier, and sold after paying applicable taxes on the sale value.

Section 16(1) of the GST Act entitles every registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business. Section 2(19) defines "capital goods" as goods capitalized in the books of account and used in the course or furtherance of business. The demo vehicles meet this definition as they are capitalized and used to further the business.

Section 17(5) of the GST Act restricts ITC on motor vehicles except when used for making further supply of such vehicles. The applicant contends that the demo vehicles, after their use, are sold and constitute a taxable supply, thus qualifying for ITC as per Section 17(5)(a)(A).

2. Utilization of ITC for Payment of Output Tax:

The applicant queries whether the ITC availed on capital goods can be utilized for payment of output tax. According to Section 49 of the CGST Act, ITC can be utilized for payment of output tax. Section 18(6) specifies that on the supply of capital goods on which ITC has been taken, an amount equal to the ITC taken, reduced by a prescribed percentage or the tax on the transaction value, whichever is higher, must be paid.

Observations and Conclusion:

The authority reviewed the facts, submissions, and relevant legal provisions. They observed that demo vehicles are essential for the applicant's business and are capitalized in their books. The vehicles are used in the course or furtherance of business, fulfilling the criteria for capital goods under Section 2(19). Since the demo vehicles are eventually sold, making further supplies, the applicant is eligible for ITC as per Section 17(5).

The authority concluded that the applicant is entitled to avail ITC on the inward supply of motor vehicles used for demonstration purposes and can utilize the ITC for payment of output tax payable under the GST Act.

Order:

The questions are answered affirmatively, allowing the applicant to avail ITC and utilize it for payment of output tax.

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