Motor Vehicle Suppliers Can Claim Input Tax Credit on Demo Vehicles Under Specific CGST Act Section 17(5) Conditions

The SC ruled that a motor vehicle supplier can claim Input Tax Credit (ITC) on demonstration vehicles, subject to specific conditions under Section 17(5) of CGST Act. The key requirement is that demo vehicles must be used for subsequent supplies and no depreciation claimed on the tax component. The ruling provides clarity on ITC eligibility for demo vehicles in the automotive sales context.

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Issues:
Whether the applicant is entitled to avail Input Tax Credit on inward supply of motor vehicles used for demonstration purposes.

Analysis:

Contentions of the Applicant:
The applicant, a motor car supplier, sought an advance ruling on availing Input Tax Credit (ITC) for demo vehicles used in their business. They argued that demo vehicles are essential for sales promotion, capitalized as fixed assets, and disposed of as second-hand cars after the demo period. The applicant claimed eligibility for ITC under Section 16(1) of the CGST Act, supported by various legal precedents. They contended that Section 17(5) restricting ITC on vehicles for transportation of persons does not apply to demo cars used for sales promotion. The applicant emphasized their intent to avail ITC on demo vehicles for further supply, citing relevant AAR decisions and legal interpretations.

Comments of the Jurisdictional Officer:
The jurisdictional officer did not provide any remarks on the application, indicating no specific objections or pending proceedings against the applicant.

Discussion and Conclusion:
The ruling authority acknowledged the sole issue of whether demo cars qualify for ITC. While demo cars are crucial for sales promotion and meet the requirements of Section 16(1) for ITC eligibility, Section 17(5) is an overriding provision. The critical question was whether ITC on demo cars is affected by Section 17(5), which limits ITC on motor vehicles used for specific purposes. The authority clarified that demo cars must meet the conditions under Section 17(5) to be eligible for ITC. However, the applicant's intention to make further supplies of demo cars post the demo period allows them to claim ITC on such vehicles. Therefore, the ruling stated that the applicant can avail ITC on motor vehicles used for demonstration purposes if they are subsequently used for further supply.

Ruling:
The ruling confirmed that the applicant is entitled to avail Input Tax Credit on inward supply of motor vehicles used for demonstration purposes, subject to conditions. However, this entitlement is contingent on not claiming depreciation on the tax component of demo cars or failing to use the cars for subsequent supplies.

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