2022 (3) TMI 487 - AAAR - GST

BMW vehicles used for demonstration lose new vehicle status, making input tax credit ineligible under Section 17(5)

The AAAR, Haryana denied input tax credit on BMW vehicles received under stock transfer arrangements. The appellant claimed ITC on IGST and compensation ... Admissibility of Input Tax Credit on motor vehicles - Restriction on Input Tax Credit for motor vehicles under Section 17(5) - Further-supply exception to the restriction on ITC for motor vehicles - ITC denial on inputs and input services used for non-permitted purposesAdmissibility of Input Tax Credit on motor vehicles - Restriction on Input Tax Credit for motor vehicles under Section 17(5) - Further-supply exception to the restriction on ITC for motor vehicles - ITC on input services relating to motor vehicles - Whether ITC of IGST and Compensation Cess paid on motor vehicles received on stock transfer and used as training, press, marketing and sales/demo vehicles and thereafter sold to dealers after limited use is admissible to the appellant - HELD THAT: - The Authority examined whether the appellant's use of BMW motor vehicles - for training of dealers, provision to media for tests, marketing/promotional activities and for test drives/product experience - brings the purchases within the ambit of admissible input tax credit. Section 17(5) carves out a specific restriction on ITC for motor vehicles of seating capacity up to thirteen, but creates limited exceptions where such vehicles are used for (A) further supply of such motor vehicles, (B) transportation of passengers, or (C) imparting training on driving such motor vehicles. The vehicles in question were acquired, capitalised in the appellant's books and put to demonstrative, promotional and training uses prior to eventual sale as used/old vehicles to dealers. The Authority found that these uses do not qualify as the statutory exception of 'further supply of such motor vehicles' because the vehicles were first put to demonstrative/operational uses and later disposed of after prolonged use; they were not received with the character of being acquired simply for onward supply 'as such.' Allowing ITC on such post-use sales would subvert the restriction in Section 17(5) and broadly extend entitlement beyond the narrow legislative exceptions (thereby making the restriction illusory). The Authority further observed that demonstration vehicles cease to retain the character of new motor vehicles once used and are akin to second hand goods, and therefore should not be treated as inputs for ITC entitlement. On the same legal rationale, ITC on repair, insurance and maintenance services consumed in respect of these motor vehicles (seating capacity up to thirteen) was also held not admissible because those services relate to goods excluded by Section 17(5) when used for the appellant's described purposes.Input tax credit on the IGST and Compensation Cess paid on the specified motor vehicles is not admissible; similarly, ITC on services (repair/insurance/maintenance) relating to those vehicles is not admissible.Final Conclusion: The appeal is dismissed on merits: ITC on the specified BMW motor vehicles and related input services is not allowable because the vehicles were used for demonstrative/marketing purposes before being sold as used vehicles and therefore do not fall within the limited exceptions to the prohibition in Section 17(5). Issues:Admissibility of Input Tax Credit (ITC) on motor vehicles used and then sold by the taxpayer for limited period.Detailed Analysis:Background:The appeal was filed by M/s. BMW India Pvt. Ltd. against an Advance Ruling denying them Input Tax Credit (ITC) on motor vehicles used in various business activities and later sold to dealers. The vehicles were received as inter-state stock transfers and used for specific purposes before being sold.Facts of the Case:The taxpayer used BMW vehicles for training, marketing, press, sales, and visitor transportation purposes before selling them as old and used vehicles. They claimed ITC on the IGST and Compensation Cess paid on these vehicles, citing Notification No.08/2018-C.T. (Rate) for concessional GST rates.Question for Advance Ruling:The main issue was whether the taxpayer could avail ITC on the IGST and Compensation Cess paid on the vehicles received for business activities and subsequently sold after a limited period of use.Ruling by Advance Ruling Authority (AAR):The AAR ruled against allowing ITC on the motor vehicles based on the specific provisions of the CGST Act and the intended use of the vehicles. They highlighted the restrictions under Section 17(5) of the Act regarding the admissibility of ITC on motor vehicles.Grounds of Appeal:The appellant challenged the AAR's ruling, arguing that they should be entitled to ITC as the vehicles were further used for taxable supply, and no time limit was prescribed for such further supply. They also claimed that the AAR did not consider their submissions adequately.Discussion and Findings:The Appellate Authority analyzed the provisions of the CGST Act regarding Input Tax Credit on capital goods and the restrictions under Section 17(5). They emphasized that ITC is generally available on goods used in the course of business but noted the specific exclusion of motor vehicles under certain conditions.Conclusion:The Appellate Authority concluded that the BMW vehicles in question were not used for the purposes specified in Section 17(5) for availing ITC. They highlighted that the vehicles were not intended for further supply as such, as they were first used for specific business activities before being sold. Therefore, the ITC on these vehicles and related services could not be allowed based on the legislative intent and the specific provisions of the law.In light of these findings, the appeal was dismissed, upholding the ruling that the taxpayer was not entitled to avail Input Tax Credit on the motor vehicles used and subsequently sold.