Dealers Can Claim Input Tax Credit on Capitalized Demo Vehicles Under Specific GST Conditions and Accounting Practices HC ruled on Input Tax Credit (ITC) for demo vehicles, affirming dealers can claim ITC on demo vehicles if capitalized in accounting records. The court ...
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Dealers Can Claim Input Tax Credit on Capitalized Demo Vehicles Under Specific GST Conditions and Accounting Practices
HC ruled on Input Tax Credit (ITC) for demo vehicles, affirming dealers can claim ITC on demo vehicles if capitalized in accounting records. The court referenced GST circulars clarifying demo vehicles as capital goods, subject to specific conditions. ITC benefits were granted, overturning a previous order denying tax credits. The judgment emphasized compliance with CGST Act provisions and tax obligations when capitalizing and potentially selling demo vehicles.
Issues: Availability of Input Tax Credit on demo vehicles.
In the judgment delivered by the High Court, the issue of availability of Input Tax Credit (ITC) on demo vehicles was addressed. The court referred to Circular No. 231/25/2024-GST which clarified that demo vehicles used by authorized dealers for promoting sales of similar vehicles are considered capital goods under the CGST Act. The circular highlighted that ITC can be claimed on demo vehicles if they are capitalized in the dealer's books of accounts, subject to certain conditions. The court also mentioned that ITC availability on demo vehicles is not affected by their capitalization, as long as other provisions of the Act are complied with. However, the judgment noted that if depreciation is claimed on the tax component of the cost of capital goods under the Income-tax Act, ITC on that tax component shall not be allowed. Additionally, if a demo vehicle that has been capitalized is later sold by the dealer, tax obligations under the CGST Act and related rules must be met.
The judgment further discussed a similar circular issued by the Haryana Government, emphasizing the availability of ITC on demo vehicles with approved seating capacity of up to 13 persons. The court set aside an earlier order that denied ITC benefits to vehicles initially used as demo vehicles. The court ruled in favor of granting ITC benefits based on the clarifications provided in the circulars. Consequently, the court overturned the previous order dated 09.10.2018 and declared that the petitioner is entitled to ITC benefits as per the terms outlined in the circulars, with further actions to be taken accordingly. The writ petition was disposed of, and any miscellaneous applications were also resolved as per the judgment.
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