Clarification on availability of input tax credit in respect of demo vehicles.

Input tax credit on demo vehicles allowed when used to promote further supply of similar vehicles; otherwise credit blocked.

Demo vehicles that are motor vehicles for up to thirteen persons used by authorised dealers to provide trial runs and demonstrate features qualify as being used for 'further supply of such motor vehicles' under clause (a)(A) of section 17(5) of the CGST Act, and thus are excluded from the blockage of input tax credit. Demo vehicles used for non-promotional purposes or where the dealer merely acts as an agent do not qualify and credit is blocked. Capitalisation does not preclude input tax credit, but section 16(3) disallows credit if depreciation on the tax component has been claimed, and sales of capitalised demo vehicles attract adjustments under section 18(6) read with rule 44(6).