Court rules GST Input Tax Credit not available for leasing motor cars to customers, including public vehicles.

The court held that Input Tax Credit (ITC) on GST paid for motor cars leased or rented to customers, including those registered as public vehicles and provided on lease or rental, is not available under the relevant sections of the CGST Act, 2017. Additionally, the ITC for services of renting or leasing motor vehicles to SEZ units without payment of IGST under LUT was deemed taxable, but ITC on the purchase of motor vehicles for such supply is not admissible under the specified sections of the Act.

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Issues Involved:
1. Availability of Input Tax Credit (ITC) on GST paid for motor cars leased or rented to customers under Section 17(5)(a)(A) of the CGST Act, 2017.
2. Availability of ITC on GST paid for motor cars registered as public vehicles with RTO and provided on lease or rental under Section 17(5)(a)(B) of the CGST Act, 2017.
3. Taxability and ITC admissibility for services of renting or leasing motor vehicles to SEZ units without payment of IGST under LUT.

Issue-wise Detailed Analysis:

1. ITC on Motor Cars Leased or Rented to Customers (Section 17(5)(a)(A)):

The applicant provides motor vehicles on hire or rental basis and classifies this service under SAC 996601, opting for a 5% GST rate without availing ITC. The applicant contends that leasing motor vehicles constitutes a "further supply" under Section 7(1)(a) of the CGST Act, 2017, thus making them eligible for ITC under Section 17(5)(a)(A). However, the authority found that the applicant's supply is classified as "Renting of Vehicles with Operators" (SAC 9966), which does not qualify as "further supply of such motor vehicles." Consequently, the applicant is ineligible for ITC under Section 17(5)(a)(A).

2. ITC on Motor Cars Registered as Public Vehicles (Section 17(5)(a)(B)):

The applicant argued that their motor vehicles, registered as public vehicles with the RTO and used to transport passengers, should qualify for ITC under Section 17(5)(a)(B). The authority examined the agreements and found that the applicant provides vehicles with drivers to vendors, who then use these services for transporting their staff. The applicant's activity is classified as renting/hiring vehicles, not directly transporting passengers. Therefore, the exception under Section 17(5)(a)(B) does not apply, and the applicant is not eligible for ITC.

3. Taxability and ITC for Renting or Leasing Motor Vehicles to SEZ (Section 16 of IGST Act):

The applicant supplies services to SEZ units under LUT without paying IGST, which is considered a zero-rated supply under Section 16 of the IGST Act, 2017. The authority confirmed that such supplies are taxable. However, since ITC on the purchase of motor vehicles is restricted under Section 17(5)(a) and not excepted under Section 17(5)(a)(A) or (B), the applicant is not eligible for ITC on motor vehicles used for supplying services to SEZ units.

Ruling:

1. GST paid on motor cars leased or rented with operators is not available as ITC under Section 17(5)(a)(A) of the CGST Act, 2017.
2. GST paid on motor cars registered as public vehicles and provided on lease or rental is not available as ITC under Section 17(5)(a)(B) of the CGST Act, 2017.
3. Supply of services by renting or leasing motor vehicles to SEZ units without payment of IGST under LUT is taxable, but ITC on motor vehicles procured for such supply is not admissible under Section 17(5)(a)(A) of the CGST Act, 2017.

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