ITC ON PURCHASE MOTOR VEHICLE (MARUTI SWIFT)

[aman chourasia]

Hi Sir, I have a query, i am a electronics retailer who sales LED TV and other goods to customer,i want to buy a maruti swift car (motor vehicle) for transportation of LED TV LG and SAMSUNG TV to customer residence as free delivery along with customer/passenger,so i want to know am i eligible to claim ITC on purchase of motor vehicle? AS I HAVE READ IN GST LAW THAT ITC IS AVAILABLE FOR "TRANSPORTATION OF GOODS" HERE DO NOTE I AM NOT USING TRANSPORT VEHICLE ITS A PASSENGER VEHICLE "MARUTI SWIFT" AND AS MOTOR VEHICLE IN GST HAS SAME MEANING MENTIONED IN MOTOR VEHICLE ACT 1988,SO I THINK I CAN USE IT TO TRANSPORT GOODS AND CAN ALSO AVAIL ITC ON BUYING A NEW MOTOR VEHICLE.I WILL NOT BE USING THE VEHICLE FOR PERSONAL USE,IF ITS NO, THEN KINDLY GIVE A VALID REASON.

[Alkesh Jani]

Dear Sir,

In this regards, please refer Section 17(5) of CGST Act, 2017, it clearly stipulates that ITC of motor vehicle is available for ‘namely’ services, as per your query the motor vehicle as mentioned by you is not commercially registered under Motor Vehicle Act, therefore, it cannot be used for any commercial purpose such as transportation of passengers or goods.

Even otherwise, If you avail ITC on the said motor vehicle, you are not eligible for depreciation under Income Tax act, and you need to book it as capital goods, so when after say 4 or 5 years, if you sell this motor vehicle, you need to show the value of your purchase as your Income and Income tax will be leviable on it.

Based on above, I am of view that, you should book as capital goods in your book of accounts and claim depreciation under Income Tax Act.

With regards,

[Mahadev R]

Though Section 17(5) does provide for ITC on vehicles used for transportation of goods, ideally it should be understood to be vehicles meant for transport of goods. However, if ITC is substantial then only chance risk to be taken. Otherwise, better to capitalise it as suggested by Mr.Aman earlier.

[KASTURI SETHI]

In the situation explained by the querist, it is relevant to go through the following definitions:

Section 2((76) of CGST Act, 2017 “motor vehicle” shall have the same meaning as assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988);

Section 2 in The Motor Vehicles Act, 1988

Section 2 (28) “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding 4[twenty-five cubic centimetres]; 1[twenty-five cubic centimetres];"

ITC is admissible I concur with the views of both the experts to the extent of regarding the aspects of depreciation and capitalization.

I could not find any condition of registration for commercial purpose.

[aman chourasia]

Dear Akhlesh Sir,

i referred to Section 17(5) of CGST Act, 2017 , it is mentioned that ITC is available "For transportation of goods",so here i am doing delivery with "motor vehicle", and maruti swift or a BMW car comes under the definition of motor vehicle act 1988 and also its no where mentioned that it should be " commercially registered under Motor Vehicle Act" ? IF its written some where then kindly provide us a pdf or link so that i can further go into conclusion.As coming to depreciation so i can avail depreciation leaving the taxable component,and booking the rest value as a capital goods, the same way i am doing for other fixed assets like office computer or printer.so in my view ITC should be allowed.

Dear Kasturi Sethi Sir,

As you said ITC is admissible,so i want to know as ITC is allowed under "For transportation of goods" so here transportation means GTA (goods transport agency) ?

[Alkesh Jani]

Dear Aman,

I appreciate your efforts, however, Please refer to definitions at Section 2(7) “contract carriage”, (13) “goods” , (14) “goods carriage” and (31) “permit” of Motor Vehicle Act,1988 and also refer Section 77 of the said Act.

Further, the word used such as commercial or private, or taxi passing, is the word used in common parlance and not as legal terms. Moreover, if your vehicle is not permitted for particular activity, it is not wise to considered as legal activity, if not mentioned in another Act. The beginning should be, is your motor vehicle hold valid permit? If not, than the activity performed by the said vehicle cannot be treated as legal activity and one cannot claim ITC for any illegal activity.

This is my point of view and based on the spirit of Indirect tax. However, you are free to act, as far as your knowledge and understanding permits you.

Thanks,

With regards,

[KASTURI SETHI]

Dear Querist,

W.r.t. your query dated 7.1.19 at serial no.4 above, here "Transportation of goods" does not refer to GTA only. Goods can be transported by any person i.e. your employee or even can be transported by even by your buyer.

Secondly, it is pertinent to mention that Motor Vehicle Act and GST Acts both are independent Acts. If any vehicle is not commercially registered but is used for commercial purpose, there may be violation of the provisions of Motor Vehicle Act but not of GST Acts. For availment of ITC fundamental conditions are :-

1. Inputs/input services/capital goods must be tax (GST) paid.

2. Proof of payment of CGST/SGST or IGST on prescribed docs..

2. These must be used in the course of business or furtherance of business.

[aman chourasia]

Dear Alkesh jain Sir,

As per your reply dated 8-1-2019, i wish to say that there is no "contract carriage" in my case, as it will be output service of free delivery of goods and sometimes passenger in car,as per permit definition,we does not need to generate any e-way bill for this item,and now coming to the definition of "goods carriage" means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods,but in the GST as per section 17 blocked credits:-

CREDIT ALLOWED :-"motor vehicles and other conveyances"------for transporting the goods.

So shall i understand here " conveyances" means two wheeler , three wheeler and four wheeler will also come under it ?

[KASTURI SETHI]

Yes. There is no restriction on two-wheeler and three wheelers for transportation of goods.

[KASTURI SETHI]

This issue was discussed in a WhatsApp group administered by GST stalwarts. This was discussed three days ago. The issue was whether ITC is admissible on scooter used transporting goods. After a very lengthy discussion pros. and cons. the matter was concluded with the view that ITC is admissible on scooter for transporting the goods.

[aman chourasia]

Dear KASTURI SETHI Sir,

Thnx for your support,i have a last doubt that,what is the meaning of "other conveyances" where can we find the meaning of it under GST law '?

[KASTURI SETHI]

Every thing is never available in law. It has to be implied.Meaning is inherent in this term. However, I shall discuss in detail.

[KASTURI SETHI]

Dear Querist,

The term , "Other Conveyances" has not been defined in the GST Acts. So we are to resort to other Acts or the legal dictionary meaning for this purpose. The term, "Other Conveyances" has been integrated with Motor Vehicles by the word, "AND". It cannot be separated from the words, "Motor Vehicles". So "other conveyances" must conform to the definition of a Motor Vehicle'

The definition in clause (28) of Section 2 of the Motor Vehicles Act, 1988 is an extensive definition which includes all kinds of mechanically propelled vehicles including a trailer. The scope of the Motor Vehicles Act is to bring into its fold all kinds of moving objects plying on the roads under its ambit so as to provide safety measures and regulate traffic. Therefore, any objects which moves on the road by itself requires registration under the Motor Vehicles Act.

Further it is pertinent to know what is 'conveyance' ? As per Board's Circular No. 22/90-CX.4, dated 11-7-1990 automobiles are conveyances for transportation of passengers, and goods on roads. Automobiles and Motor Vehicles are synonyms. As per the Automobile Cess Rules [under the industries (Development and Regulation) Act, 1951],

‘Automobile’ means motor cars, buses, trucks, jeep type vehicles, vans, scooters, motorcycles, mopeds, and all other automobiles covered under the sub-heading (5) of Heading 7 ‘Transportation’ of the First Schedule to the Act.

Thus we can infer that "Other Conveyances" includes all motor vehicles meant for transportation of passengers and goods.

[AJAY KUMAR]

The word 'conveyance" has been defined in Section 2(34) of the CGST Act, 2017 as "includes a vessel, an aircraft and a vehicle". accordingly, the word 'other conveyances' has to be interpreted and understood.

[aman chourasia]

Hello Dr.sir Kasturi Seth,

is ITC disallowed on Purchase of motor vehicle like swift car in the current changes of ITC law?

[KASTURI SETHI]

Not allowed inasmuch as the words, "transportation of goods " have been omitted w.e.f. 1.2.19. You cannot avail ITC on the purchase of car for transportation of goods as mentioned in your query dated 7.1.19. Situation has changed w.e.f. 1.2.19. As per amended Section 17(5) of CGST ACT, ITC is allowed if motor vehicle is used for

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]

Even employees of the company/factory cannot be treated as passengers. See the definition of 'passenger'.

In my view you do not fulfil the conditions.

AI Summary

Input tax credit on motor vehicles now limited by amendment; eligibility confined to specific uses and subject to tax and documentation requirements.
Whether ITC is admissible on purchase of a passenger motor vehicle used to deliver goods hinges on Section 17(5) CGST: ITC was previously claimed where vehicles transported goods, with reliance on Motor Vehicles Act definitions and on meeting GST payment and documentary requirements, but a subsequent amendment restricts ITC to limited uses (such as further supply of vehicles, passenger transportation or driving training), and claimants must also consider income tax capitalization and depreciation consequences and regulatory permit requirements under motor vehicle law.