TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 37
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.... would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression "GST Act" would mean the CGST Act and the WBGST Act both. 1.2 The applicant is an authorised agent of Mercedes Benz for supply of cars, related spare parts and is also engaged in providing various services such as repairs, warranties, roadside assistance and servicing. It is responsible for facilitating the sales of Mercedes-Benz passenger vehicles, including the Mercedes-Benz EQ (Electric Cars). As submitted, the Applicant shall function as a self-employed commercial agent with the responsibility of brokering the sales of vehicles on behalf of MB INDIA. The primary objective is to facilitate and support MB INDIA's direct sales to e....
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....services provided, the applicant is entitled to receive a commission. 2.3 The applicant has entered with an Authorised Agent Agreement with MB INDIA on August 30, 2021. According to paragraph 7.5 of the said agreement, MB INDIA will make available the authorised agent with a sufficient number of Demo vehicles, which are essential for demonstrating the Contract Goods to prospective customers. The said para has further been amended by virtue of which the applicant may buy vehicles on its own account to carry out demonstration of Contract Goods. 2.4 The terms and conditions related to the above provision may be summarized as under: * Upon the request of the authorised agent, MB INDIA may sell the Demo vehicles to the authorised agent at a discount as per the Demo vehicles Guideline issued by MB INDIA from time to time. * The rights of title to and ownership of the Demo vehicles shall vest with the authorised agent in its own capacity and not in its capacity as an Agent. * The authorised agent shall use the Demo vehicles only for the purpose of providing demonstration of Contract Goods. * Upon receiving the delivery of Demo vehicle, the authorised agent shall conduct Pre-deli....
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....A at a discounted price, with the GST liability duly paid during these transactions. Upon purchase, the applicant records demo cars as purchase of inventory (Stock in Trade) in its books of accounts. When these cars are sold, they are removed from the inventory and entire sale proceeds are accounted for in Sales account. 2.6.2 Presently, the applicant, while filing returns in FORM GSTR-3B, claims the ITC on purchase of Demo cars and subsequently reverses the same in the same month in temporary ITC reversal. In other words, when the applicant purchases a demo car, it avails the ITC in column 4(A)(5) of GSTR-3B and then immediately reverses the same in 4B(2) column of GSTR-3B due to legal confusion in the minds of the applicant. 2.6.3 Further when demo car is eventually sold, the applicant considers the demo car as old and used motor vehicle and therefore follows the margin scheme specified in Notification No. 8/2018-Central Tax (Rate) dated 25.01.2018. 2.6.4 The applicant submits that in the motor vehicle industry, a demonstration vehicle is an indispensable tool for promoting sales. It allows potential customers to experience the vehicle first-hand through test drives, helping t....
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....emonstration / test drive vehicles and sell them after they have been used for a specified mileage or periods, as referred in the policy. Failure to comply with this requirement could disrupt the applicant's business. * As per section 17(5)(a)(A), input tax credit on motor vehicles shall not be allowed except when they are used for further supply of such motor vehicles. The term 'such" refers to the things or goods referred earlier in the sentence, in this case the motor vehicle. Therefore, 'such' in "further supply of such motor vehicles" refers to the specific motor vehicle that has been acquired and encompasses all vehicles acquired for the purpose of resale, including demo vehicles. As per the Merriam Webster dictionary - Such can mean something similar as indicated earlier. Collins Dictionary defines the word 'Such' with following description: You use such to refer back to the thing or person that you have just mentioned, or a thing or person like the one that you have just mentioned. You use such as and such...as to introduce a reference to the person or thing that has just been mentioned. * Allahabad High Court in the case of Mohan Lal v. Grain Chamber Ltd.....
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....of Delhi, (1995) 1 SCC 47: AIR 1995 SC 430 [Date of decision: 26-10-1994] the Hon'ble court was considering interpretation of the term "Such condition" in Delhi Municipal Corporation Act, 1957 (66 of 1951) - S. 313 - Delhi (Control of Building Operations) Ordinance, 1955 - Cl. s para 3(iv): The expression, 'such conditions' has to be understood so as to advance the objective of the provision and the purpose for which it has been enacted. The Corporation has been given the right to examine that the layout plan is not contrary to any provision of the Act or the rules framed by it. But the power cannot be construed to mean that the Corporation in the exercise of placing restrictions or imposing conditions before sanctioning a layout plan can also claim that it shall be sanctioned only if the owner surrenders a portion of the land and transfers it in favour of the Corporation free of cost. That would be contrary to the language used in the section and violative of civil rights which vests in every owner to hold his land and transfer it in accordance with law. Such condition amounts to transfer of ownership and not merely transfer of right of management. The two rights, namely....
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....ed to the facts of the instant case. Further, in case of AAAR of BMW, the difference was that they were registered as a State administered taxpayer for running a training center for the training of Engineers and Marketing professionals etc. and hence, the same can also not be applied to the instant case. 2.9 The applicant further draws attention to the provisions of the Motor Vehicle Act and the rules made there under and summarizes such provisions as under: a. A dealer is required to take a trade certificate for operating the business of car dealer. b. Car dealer is exempt from registering a car; he can run the car with him under the TC plate. c. He can use the TC plate car for reasonable demonstration purposes. d. Word 'Reasonable' is not defined in the law or rules, however it is practically understood to be the city limits. CLASSIFICATION: REIMBURSEMENT OF LOSS ON SALE OF DEMO CAR 2.10 In order to determine the taxability and classification of demo car loss reimbursement by MB INDIA, the contention of the applicant is as follows: 2.10.1 As per Clause (1)(a) of the Section 7 of the CGST Act, 2017, all kinds of supply of goods or services made or agreed to be made for....
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....rse this loss. Conversely, if a profit is realized, MB INDIA retains the right to recover this profit. 2.10.6 It is essential to understand that in both situations - the reimbursement of losses and the recovery of profits - these financial transactions are inherently linked to the sale of the demo car. Hence, rather than treating these transactions as separate and potentially taxable supplies of services under the category of 'tolerating an act', MB INDIA should issue specific Credit Notes in the case of a loss incurred during the demo car sale and Debit Notes when a profit is realized in alignment with the provisions of Section 34 of the GST Act. 3. Submission of the Revenue The concerned officer from the revenue has not expressed any view on the issue raised by the applicant. 4. Observations & Findings of the Authority 4.1 We have gone through the records of the issue as well as submissions made by the authorised representative of the applicant during the course of personal hearing. The applicant has raised three questions in the application made in FORM GST ARA-01. We are going to deal with the issues one by one. 4.2 The first question is related to admissibility of in....
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....tax credit shall not be available in respect of the following, namely:- (a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:- (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles;" 4.4 In other words, input tax credit on motor vehicles used for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), can be availed only when such motor vehicles are (i) supplied further, or (ii) used for transportation of passengers, or (iii) used for imparting training on driving such motor vehicles. The applicant has submitted that the vehicles purchased by him for demonstration purposes qualify the specified seating capacity and the applicant also makes further supply of such vehicles, though at a later point in time. The applicant contends that there is no time limit prescribed in this regard for making such further supplies so as to impose restriction under section 17(5)(a)(A) of the....
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....of input tax credit as imposed in section 17(5)(a)(A) of the GST Act is not applicable on purchase of demo vehicles which are supplied by the applicant after the specified time for providing test drive facility. 4.7 We now come to the next issue which is related to classification and rate of tax at the time of sale of demo car. We find that Chapter 87 of the CUSTOMS TARIFF ACT, 1975 deals with 'vehicles other than railway or tramway rolling-stock, and parts and accessories thereof'. Further, Chapter 8702 covers 'motor vehicles for the transport of ten or more persons, including the driver'. Furthermore, Chapter 8703 covers 'motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars'. As we have expressed our view in affirmative in respect of admissibility of input tax credit on purchase of demo vehicles, we are of the opinion that there would be no change of classification of the demo vehicle, at the point of sale by the applicant. 4.8 In regard to rate of tax of demo car, we hold that the outward supply of demo car would attract same rate of tax of its inward supply subject to....
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....g cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration.' The said circular further clarifies that 'one of the parties to such agreement/contract (the first party) must be under a contractual obligation to either (a) refrain from an act, or (b) to tolerate an act or a situation or (c) to do an act. Further some "consideration" must flow in return from the other party to this contract/agreement (the second party) to the first party for such (a) refraining or (b) tolerating or (c) doing.' It has also been clarified that 'The key in such cases is to consider whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. If the answer is yes, then it constitutes a 'supply' within the meaning of the Act, otherwise it ....
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....b) the person chose to tolerate; c) such tolerance was for a consideration as per an agreement (written or otherwise) to tolerate; d) the tolerance was a taxable service." 4.14 In the case at hand, the applicant has entered into an agreement with MB INDIA with a specific condition towards 'Demo Car Loss Sharing" knowing very well that it may suffer a loss at the time of selling of demo vehicle since the vehicle would have undergone some deterioration while providing test drive facility to the prospective buyers. In other words, MB INDIA enters into the agreement with a promise to compensate where the applicant would suffer a loss on sale of demo vehicle. This compensation is paid as a result of the contract and therefore would qualify to be a 'consideration'. In Fazaladdin Mandal vs Panchanan Das (AIR 1957, CAL 92), the Hon'ble High Court at Calcutta held that "Consideration is the price of a promise, a return or quid pro quo, something of value received by the promisee as inducement of the promise. An act done or forbearance made in return for a unilateral promise is a sufficient consideration to support the promise." We are therefore of the view that the applicant has entere....