ITC on second havd vehicle purchase

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

A scrap dealer has purchased a second-hand vehicle, rebuilt and hired. It is used to supply food articles, vegetables, milk and other daily consumables. Is he eligible for ITC on the purchase of the second-hand vehicle or blocked u/s 17?

[K.lakshmipati rao]

Dear Mr. KASTURI SETHI ji,

Agreed with the given dictionary meaning. May I request you to elaborate further, since the clarification sought by the querist is about the entitlement for claim of ITC on the Inward supplies of Scrap.

[KASTURI SETHI]

Dear Sir, 

The  initial query is about admissibility of ITC on 'second hand vehicle'  and not about inward supply of scrap.

"Is he eligible for ITC on the purchase of the second-hand vehicle or blocked u/s 17 ?

Pl. do not intermingle 'scrapped material' with 'second hand vehicle'.

[K.lakshmipati rao]

Dear Mr. KASTURI SETHI ji,

Finally, what is your opinion on the subject query for the best interest of readers - "Is he eligible for ITC on the purchase of the second-hand vehicle or blocked u/s 17 ?

[KALLESHAMURTHY MURTHY K.N.]

Dear all learned experts,

A scrap dealer had purchased a second-hand vehicle. The seller sold to a scrap dealer means logically understanding that it was sold as scrap. (This is my assumption). Scrap is a taxable goods so the ITC question arises only when the tax invoice is raised. As such there must be a tax invoice issued by a registered person. This is another logic. The vehicle was refurbished and used in the course of furtherance of business in a different form but not sold as scrap. 

The discussions between the learned experts on the issue have taken different aspects and angles and some consequential laws come in the way. Here the HSN also plays its role. From the points of the discussions of all the learned experts, I came to understand that the refurbished vehicle is not eligible to avail of ITC since its use is unlawful and blocked u/s 17(5). The purchase of scrap is not used in the furtherance of business and hence not eligible to avail of the ITC as it serves as the end use due to the effect of HSN.

This is my personal opinion.  Any more points for discussion are let to the experts.

With respects  

[KASTURI SETHI]

Sh. K.Lakshmipati Rao Ji,

Inference can be drawn on the basis of the contents available in the above interaction.

[Sadanand Bulbule]

Dear all

Repeated efforts can not separate salt from sea. So also certain truths are inherent and need to be accepted as they are. Too much dissection may destroy the whole thing. 

This is not in the context of any query. 

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir,  I am highly thankful to you for your sincere advice and it should become an integral part of our life style. Repeat value is zero here. Repetition does not yield any result. 

[VENU K]

From the question what I understand is 

1. A scrap dealer

2. Purchase of a second hand vehicle

3. Repairs and gives it on rent to third parties.

1.A scrap dealer buying a vehicle does not ipso fact make it scrap even if the vehicle is second hand. It is assumed that inward supply is not billed as scrap when we look at HSN code.

2. Assuming input tax was paid he is perfectly eligible to to claim credit if it is a goods transport vehicle and is used in his business by giving it on hire. From the query I understand so.

3.If he is letting it out on hire and charges tax on hire charges  , he can claim ITC even if it is a motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons.

If the HSN says that the inward supply is a vehicle , then the only way ITC can be denied is by showing that it is hit by provisions of 17(5)(a) in my opinion.

Enquiring into road worthiness, fitness etc is beyond the mandate of GST officer as long as the inward supply is a vehicle as per HSN

[Amit Agrawal]

IMHO, query is not drafted properly and result of its that TMI contributors left to assume / presume so many things (either knowingly or even unknowingly) while sharing their views. 

Having said that and while broadly agreeing with Shri VENU K Ji for his views at post No. 28 above, I wish to say the followings:

A. If what is purchased is a 'second hand motor vehicle' and NOT 'scrap', then, Section 17(5)(a) may come into play and availability of ITC will be dependent on other relevant factors (i.e. nature of vehicle - Goods Transport Carriage or Passenger Vehicle, If its Passenger Vehicle then what is capacity of such vehicle, usage of such vehicle etc.).

B. If what is purchased is NOT a 'second hand motor vehicle' but 'scrap', then, Section 17(5)(a) will not come into play at all and ITC can be availed by the tax-payer (i.e. scrap dealer) as long as such 'scrap' is used in course of or furtherance of his business. 

C. For views given in Para 'B' above, same are with the presumption that nature of goods ('scrap' instead of 'second hand motor vehicle') is NOT changed to circumvent blockage of ITC u/s 17(5)(a) at end of purchaser (or / and, for avoiding additional tax-liability from point of seller) and the tax-payer can prove the same based on 'evidences' showing "factual position of goods purchased was indeed 'scrap' and not 'second hand motor vehicle'" as on date of purchase. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Amit Agrawal]

Please read first line of my post above as follows: IMHO, query is not drafted properly and here, TMI contributors left to assume / presume so many things (either knowingly or even unknowingly) while sharing their views.

[K.lakshmipati rao]

Dear Mr. KALLESHAMURTHY MURTHY

Since the query is not drafted properly, TMI contributors left to assume / presume so many things (either knowingly or even unknowingly), therefore, request you to kindly check for the factual of transaction with your Scrap dealer, and resend the query so as to minimize our correspondence in the matter.

[KASTURI SETHI]

Now all the facts are available at serial no.24 above.  Sh.Kalleshamurthy Murthy Ji has  already worked hard to make the query crystal clear. He did not remain dormant. 

The query was not clear only  at the first instance.

[Sadanand Bulbule]

Dear all

"One query, many perceptions". Thought-provoking discussion.

AI Summary

Input Tax Credit eligibility on refurbished vehicle hinges on scrap classification versus treated motor vehicle, affecting credit entitlement.
Entitlement to Input Tax Credit on purchase of a second hand vehicle bought as scrap and refurbished turns on whether the goods remain 'scrap' used in the buyer's trade (creditable if properly invoiced and the buyer is a registered scrap dealer) or have become a roadworthy second hand motor vehicle (where credit may be restricted under the rule barring credit on certain motor vehicles). Classification under HSN, invoicing, purchaser's business, and valuation/margin scheme considerations determine the GST credit outcome.