2020 (11) TMI 1066 - AAAR - GST

Input tax credit - inward supply of Motor Vehicles which are used for demonstration purpose in the course of business of supply of motor vehicles - capital goods - utilisation of credit for the payment of output tax payable under this Act allowed or not - HELD THAT - Section 17 (5)(a) prescribes the condition in which input tax credit shall not be available on 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 - (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicle. The demo vehicles used for demonstration and for offering trial facility to customers are not covered in above exceptions. The ruling of Madhya Pradesh Authority for Advance Ruling is agreed upon - the Appellant is not entitled to avail input tax credit on inward supply of motor vehicles which are used for demonstration purpose.

Summary

Issues Involved:
1. Entitlement to input tax credit on motor vehicles used for demonstration purposes.
2. Applicability of Section 17(5) of the CGST Act regarding blocked credits.
3. Interpretation of the exceptions under Section 17(5)(a) of the CGST Act.
4. Comparison with rulings from other states' AARs.
5. Impact of the time frame for further supply on input tax credit eligibility.

Detailed Analysis:

Issue 1: Entitlement to Input Tax Credit on Motor Vehicles Used for Demonstration Purposes
The appellant, an authorized dealer for Kia Motors Corporation, sought to avail input tax credit (ITC) on motor vehicles used for demonstration purposes, arguing that these vehicles are used in the course of business to enhance sales and provide training.

Issue 2: Applicability of Section 17(5) of the CGST Act Regarding Blocked Credits
Section 17(5) of the CGST Act specifies that ITC is not available for motor vehicles used for personal purposes, with certain exceptions. The appellant contended that demo vehicles should not be considered under blocked credits as they are used exclusively for business purposes.

Issue 3: Interpretation of the Exceptions Under Section 17(5)(a) of the CGST Act
The appellant argued that demo vehicles fall under the exceptions listed in Section 17(5)(a)(i)(A) and (C), which allow ITC for motor vehicles used for further supply or imparting training. They claimed that demo vehicles help in furtherance of business by providing test drives and training, thus fitting within these exceptions.

Issue 4: Comparison with Rulings from Other States' AARs
The appellant cited favorable rulings from Goa, Kerala, and Maharashtra AARs, where ITC on demo vehicles was allowed. They argued that denying ITC would place them at a disadvantage compared to dealers in other states who have received favorable rulings.

Issue 5: Impact of the Time Frame for Further Supply on Input Tax Credit Eligibility
The appellant contended that the GST Act does not prescribe a specific time frame within which further supply must occur for ITC eligibility. They argued that selling demo vehicles after one or two years should still qualify for ITC as long as the vehicles are eventually sold.

Judgment Summary:

Discussion and Findings:
1. Business Purpose: The appellant's use of demo vehicles for enhancing sales and training was acknowledged. However, the primary intention of purchasing demo vehicles was for demonstration and trial purposes, not for immediate further supply.

2. Capitalization and Depreciation: The appellant capitalized the demo vehicles in their books and did not charge depreciation on the tax component, fulfilling a condition under Section 16(3). However, this alone does not entitle them to ITC if Section 17(5) conditions are not met.

3. Rulings from Other States: The appellant's reliance on favorable AAR rulings from other states was noted. However, the Madhya Pradesh Appellate Authority found the local AAR's ruling reasonable and appropriate.

4. Time Frame for Further Supply: The appellant argued that the GST Act does not specify a time frame for further supply. However, the AAR held that selling demo vehicles after one or two years does not qualify as further supply under Section 17(5)(a).

5. Blocked Credits: The demo vehicles used for demonstration and trial purposes do not fall under the exceptions in Section 17(5)(a)(i)(A), (B), or (C). Therefore, ITC on these vehicles is blocked.

Order:
The Appellate Authority upheld the ruling of the Madhya Pradesh Authority for Advance Ruling, concluding that the appellant is not entitled to avail input tax credit on inward supply of motor vehicles used for demonstration purposes as they do not qualify under the exceptions given in Section 17(5)(a) of the GST Act, 2017.