Treatment of demo/test drive vehicle

[Asked by Guest]

 

Dear All,

The brief facts of the case are as under:-

Assessee is a private limited company 

Assessee company is an authorized dealer of a reputed car manufacturer

As per policy of manufacturer the dealer has to purchase and pay the price for the demo/ test drive car

The car is insured and registered in the name of the dealer

The car is used only for prospective customer demo/test drive purpose

As per the policy of manufacturer the demo/test drive car has to keep by dealer atleast for 2 years

After two years dealer can sell the car as used car.

In this matter my queries are as under:-

1. Accounting:-

Cost of Car should be capitalised or charged to revenue.

If capitalsed should be categorised under plant & machinery or under Motor car

 

2. Income Tax

If charged to revenue then whether allowable under the  IT Act.

 3. Service tax

If categorised as plant, Whether cenvet credit is available under service tax output category "Authorised service station" or "Business Auxiliarry servcies".

4. Wealth tax

If categorised as Motor Car, whether taxable under the wealth tax act, being more than one car.

Thanks

AI Summary

CENVAT credit for demo test drive vehicles not available, limiting input credit claims for dealers on such cars.
The dealer purchased demo/test drive car, used only for customer demonstrations and later sale as a used car, raises whether its cost should be capitalised (as Plant & Machinery or Motor Car) or expensed, and the consequent income tax and wealth tax treatment. Critically, the demo car does not qualify as an input for authorised service station services and CENVAT/service tax credit, including excise duty credit towards service tax, is not available.