2021 (1) TMI 692 - AAR - GST

Demo vehicles not eligible for Input Tax Credit under GST Act despite business use

The ruling concluded that the applicant is not eligible for Input Tax Credit (ITC) on demo vehicles as they do not meet the exceptions in Section 17(5)(a) ... Input tax credit eligibility - Restriction on credit for motor vehicles under Section 17(5)(a) - Exceptions for further supply, transportation of passengers and imparting training - Capital goods capitalisationInput tax credit eligibility - Restriction on credit for motor vehicles under Section 17(5)(a) - Exceptions for further supply, transportation of passengers and imparting training - Capital goods capitalisation - Input tax credit on demo motor vehicles purchased and capitalised in the books by an authorised dealer. - HELD THAT: - The authority examined the interplay between Section 16 (entitlement to credit) and the exception carved out by Section 17(5), as amended w.e.f. 1.2.2019, which disallows credit in respect of motor vehicles subject to limited exceptions. Section 17(5) operates 'notwithstanding' Section 16 and therefore its bar applies where the conditions of the exceptions are not met. The applicant's demo vehicles, though used in the furtherance of business for test drives and demonstrations and capitalised as assets, do not fall within any of the statutory exceptions in clause (A) (further supply of such motor vehicles), (B) (transportation of passengers) or (C) (imparting training on driving such motor vehicles) as contemplated by Section 17(5)(a). The authority furthermore observed that subsequent sale of a demo vehicle after use is a sale of a used/second-hand vehicle and cannot be equated with 'further supply' within the exception. Undertakings given by the applicant (non claim of depreciation on the tax component, adherence to provisions on adjustment on sale of capital goods) do not alter the statutory applicability of Section 17(5)(a). Consequently, eligibility for input tax credit cannot be predicated on mere capitalisation, intended business use, or later sale; the statutory exceptions must be satisfied. (Findings and reasoning appear at paras. 7.3-7.5; ruling at para. 8.1.) [Paras 7, 8]The applicant is not eligible to avail input tax credit on demo vehicles purchased and capitalised in the books since such vehicles do not fall within the exceptions specified in clause (A), (B) or (C) of Section 17(5)(a) of the GST Act.Final Conclusion: Advance Ruling: Input tax credit on demo motor vehicles purchased for demonstration and capitalised in the applicant's books is not admissible under Section 17(5)(a) of the GST Act as the demo vehicles are not covered by the statutory exceptions for credit. Issues:- Eligibility for Input Tax Credit on demo vehicles purchased for business purposes.Analysis:1. Facts of the Case:- The applicant, an authorized dealer of a car brand, sought an advance ruling on availing Input Tax Credit (ITC) for demo vehicles used for business purposes.2. Question Raised:- The main issue was whether ITC on demo vehicles can be claimed as they are capitalized in the books of accounts.3. Department's View:- The department's view was that ITC on motor vehicles purchased for demo purposes cannot be availed due to specific provisions of the CGST Act.4. Applicant's Arguments:- The applicant argued that demo vehicles are used for business promotion, training, and test drives, making them eligible for ITC under relevant provisions.5. Discussion and Findings:- The Authority noted that while demo vehicles are essential for business, the specific provisions of Section 17(5)(a) of the GST Act restrict ITC eligibility for motor vehicles unless used for specific purposes.6. Legal Interpretation:- The Authority clarified that the exceptions in Section 17(5)(a) must be met for ITC eligibility, and mere capitalization or future sale of demo vehicles does not override these provisions.7. Ruling:- The ruling concluded that the applicant is not eligible for ITC on demo vehicles as they do not meet the exceptions in Section 17(5)(a) of the GST Act, despite being used for business purposes.8. Validity:- The ruling is valid unless declared void under specific provisions of the GST Act, providing a clear decision on the ITC eligibility for demo vehicles based on legal interpretations and relevant provisions.