2020 (1) TMI 741 - AAR - GST

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 ... Input tax credit on capital goods - Blocked credit in respect of motor vehicles - Use or intended to be used in the course or furtherance of business - Further supply of such vehicles - Availability and utilisation of input tax credit - Reversal / adjustment on supply of capital goodsInput tax credit on capital goods - Use or intended to be used in the course or furtherance of business - Blocked credit in respect of motor vehicles - Further supply of such vehicles - Entitlement to avail input tax credit on motor vehicles purchased and capitalised as demo vehicles used in the course or furtherance of business. - HELD THAT: - The Authority found on the facts that the demo vehicles were purchased against tax invoices, capitalised in the applicant's books as fixed assets (excluding GST), and used by the applicant (a vehicle dealer) to provide trial runs to customers - an activity integral to marketing and sale of motor vehicles. Section 16(1) does not distinguish between capital goods and other goods for ITC purposes, and the definition of capital goods includes goods capitalised in the books and used or intended to be used in the course or furtherance of business. Although Section 17(5) generally blocks credit on motor vehicles, it permits credit where such vehicles are used for making the further supply of such vehicles. The applicant sells the demo vehicles after use and pays tax on such sale; there is no time limit in the Act for making the further supply. Applying these provisions, the Authority concluded that the demo vehicles qualify as capital goods used in the course or furtherance of business and that the applicant is eligible to claim ITC on their inward supply. [Paras 5]The applicant is entitled to avail input tax credit on the demo motor vehicles as capital goods.Availability and utilisation of input tax credit - Reversal / adjustment on supply of capital goods - Whether the input tax credit so availed can be utilised for payment of output tax and the consequences on subsequent supply of the demo vehicles. - HELD THAT: - The Authority noted that utilisation of ITC is governed by the manner specified in Section 49. It further observed that where capital goods on which ITC has been taken are subsequently supplied, Section 18(6) requires payment of an amount equal to the ITC taken on such capital goods reduced by prescribed percentage points or the tax on the transaction value, whichever is higher. Thus, while the applicant may utilise the ITC for payment of output tax in the normal course, statutory provisions apply for adjustment/reversal upon onward supply of the demo vehicles. [Paras 5]ITC availed on the demo vehicles can be utilised for payment of output tax in accordance with the manner of utilisation under the Act, subject to the adjustment/reversal obligations on subsequent supply of those capital goods.Final Conclusion: The Authority ruled that the applicant may avail input tax credit on motor vehicles purchased and capitalised as demo vehicles used in the course of its business, and such credit may be utilised for payment of output tax, subject to the statutory adjustment/reversal requirements applicable on the subsequent supply of those capital goods. 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.