2019 (3) TMI 1850 - AAR - GST

Input Tax Credit - availability of credit on capital goods (demo cars) and set off against output tax payable under GST - availability of credit on ancillary input services such as insurance and repair and maintenance availed in respect of the demo cars - Section 16(1) of the CGST Act - HELD THAT - Section 16(1) relates to entitlement with respect to credit of input tax charged on any supply of goods and services or both to the recipient which are used or intended to be used in course or furtherance of his business. It means that the recipient is entitled to credit of input tax charged on supply of inputs as well as capital goods to him - A plain reading of the provisions contained in Section 17(5)(a) of CGST Act suggests that the provisions of Section 17(5)(a) of the Act are not only over-riding provisions with respect to Section 16(1) and Section 18(1), but are also exhaustive in nature and limits the scope of Input tax credit with respect to motor vehicles. The use of the words Notwithstanding anything contained in sub-section (1) of section 16 emphasizes that the Input Tax Credit can be availed on motor vehicles only if the conditions prescribed under Section 17(5)(a) are satisfied. So, even if, the demo vehicles are capitalized in the book of accounts and are used or intended to be used in the course or furtherance of business, the Input Tax Credit with respect to these vehicles cannot be availed by the recipient - The applicant has further contented that the demo vehicles are eventually sold to buyers in open market and GST is charged on such supply. A close scrutiny of Section 17(5)(a) reveals that the term supply has been prefixed by the word future and due weightage should be given to the prefix. In essence the term further supply connotes resale which is not the purpose of the applicant behind purchasing demo cars. Availing of Input Tax Credit on the ancillary input services such as insurance and repair maintenance - HELD THAT - The demo vehicles are not used for the purposes specified under Section 17(5)(a) i.e. for making taxable supplies, including further supply of such motor vehicles and are, therefore, not covered under exception provided under section 17(5)(ab)(i) - These demo vehicles are also not covered under exceptions mentioned under section 17(5)(ab)(ii).

Summary

Issues:
1. Whether Input Tax Credit (ITC) can be availed on demo cars used for demonstration and set off against output tax payable under GST.
2. Whether Input Tax Credit (ITC) can be availed on ancillary input services such as insurance and repair & maintenance in respect of demo cars.

Analysis:

Issue 1:
The applicant argued that demo cars are essential for sales promotion and are capitalized in the books, making them eligible for ITC under Section 16(1) of the CGST Act. However, Section 17(5)(a) restricts ITC on motor vehicles unless used for specific purposes, overriding Sections 16(1) and 18(1). The ruling emphasized that ITC for demo cars is disallowed under Section 17(5)(a) despite being used for business purposes.

Issue 2:
Regarding ancillary input services, Section 17(5)(ab) disallows ITC on services related to motor vehicles unless used for specified purposes. The ruling found that demo cars did not meet the criteria under Section 17(5)(a) or (ab), making ITC on ancillary services ineligible. The ruling concluded that GST paid on demo cars and related services cannot be claimed as ITC or set off against output tax under GST.

The Advance Ruling Authority highlighted the exhaustive and restrictive nature of Section 17(5)(a) and (ab) in limiting ITC for motor vehicles and related services. The ruling clarified that even though demo cars are essential for business operations, they do not meet the criteria specified under the relevant sections for availing ITC. The ruling emphasized that the prefix "further supply" in Section 17(5)(a) implies resale, which was not the purpose of purchasing demo cars. Ultimately, the ruling concluded that ITC on demo cars and ancillary services is inadmissible under the GST provisions, as outlined in Section 17(5)(a) and (ab).