TaxTMI 
TaxTMI 
Clarification on availability of input tax credit in respect of demo vehicles
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....icy Wing ****** In the reference cited, the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, GST Policy Wing has issued Circular No 231/25/2024-GST, dated 10.09.2024 based on the recommendations of the GST Council. Hence, following pari-materia circular is issued. 2) The demo vehicles are the vehicles which the authorised dealers for sale of motor vehicles are required to maintain at their sales outlet as per dealership norms and are used for providing trial run and for demonstrating features of the vehicle to the potential buyers. These vehicles are purchased by the authorised dealers from the vehicle manufacturers against tax invoices and are typically reflected as capi....
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.... Section 17(5) of TNGST Act provides that input tax credit shall not be available in respect of motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons(including the driver), except when they are used for making 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. 5.2 The intention of law, as it appears from the use of expression 'when they are used for making the following taxable supplies' in clause (a) of section 17(5) of TNGST Act, is to exclude certain cases (based on the nature of outward taxable supplies being made using the said m....
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.... words "such motor vehicles" instead of "said motor vehicle", in sub-clause (A) of the clause (a) of section 17(5) of TNGST Act, implies that the intention of the lawmakers was not only to exclude from the blockage of input tax credit, the motor vehicle which is itself further supplied, but also to exclude from the blockage of input tax credit, the motor vehicle which is being used for the purpose of further supply of similar type of motor vehicles. As demo vehicles are used by authorized dealers to provide trial run and to demonstrate features of the vehicle to potential buyers, it helps the potential buyers to make a decision to purchase a particular kind of motor vehicle. Therefore, as demo vehicles promote sale of similar type of motor ....
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...., the dealer purchases demo vehicle from the vehicle manufacturer. The dealer may sell the said demo vehicle to a customer after a specified time or kilometres as per agreement with the vehicle manufacturer on payment of applicable GST. In such a case, the authorized dealer is merely providing marketing and/or facilitation services to the vehicle manufacturer and is not making the supply of motor vehicles on his own account. Therefore, the said demo vehicle cannot be said to be used by the dealer for making further supply of such motor vehicles. Accordingly, in such cases, input tax credit in respect of such demo vehicle would not be excluded from blockage in terms of sub-clause (A) of clause (a) of section 17(5) of TNGST Act and therefo....
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....rs. Where such vehicles are capitalized in the books of accounts by the authorized dealer, the said vehicle falls in the definition of "capital goods" under section 2(19) of TNGST Act. As per provision of section 16(1) of TNGST Act, subject to such conditions and restrictions as may be prescribed, a recipient of goods is entitled to take input tax credit in respect of tax charged on the inward supply of any goods, which as per definition of "goods" under section 2(52) of TNGST Act, includes even capital goods. Further, section 2(19) of TNGST Act also recognizes that capital goods are used or intended to be used in the course or furtherance of business. Accordingly, availability of input tax credit on demo vehicles is not affected by way of ....