2020 (8) TMI 916 - AAR - GST

Utilization of Input GST - Whether Payment of GST Liability on sale of vehicle, spares, labour can be done by utilising the Input GST on purchase of Demo Vehicle, other expenses like Repairs Maintenance, Insurance etc., relating to Demo Vehicle used for Demonstration and or Trial run purpose? - HELD THAT - The demo cars purchased from supplier are being capitalised. The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. Sub-section (19) of Section 2 of the CGST Act states Capital Goods as the value of which is capitalised in the books of accounts of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. - In this case, demo vehicles is used for furtherance of supply of such vehicles (such as demo car) as the prospective buyer is subjected to training about the features of the car and how to use them and is also used for driving including the test drives. Application allowed.

Summary

Issues:
1. Admissibility of input tax credit for GST paid on purchase of demo vehicles and related expenses for demonstration purposes.

Analysis:

Issue 1: Admissibility of input tax credit

The applicant, a private limited company engaged in the resale and service of BMW vehicles, sought an Advance Ruling on whether they could utilize the Input GST on the purchase of demo vehicles and related expenses like repairs, maintenance, and insurance to pay their GST liability on the sale of vehicles, spares, and labor used for demonstration purposes. The applicant argued that demo vehicles were essential for marketing and sales promotion, providing trial runs to customers to understand the features, thus constituting capital assets. They relied on previous rulings by the Authority for Advance Ruling in Maharashtra and Kerala where similar scenarios were allowed input tax credit due to the nature of the business operations. The rulings emphasized that demo vehicles were considered capital goods, and input tax credit was permissible if the vehicles were used in the course or furtherance of business. The applicant's case was supported by the definition of capital goods under the CGST Act, which includes assets capitalized in the books of accounts and used in the course or furtherance of business. The ruling authority concluded that the applicant could claim and set-off the Input Tax Credit of demo vehicles, repairs, maintenance, and insurance under GST with certain conditions. These conditions included maintaining a maximum of one demo vehicle of each model until disposal, not claiming depreciation on the GST components of demo vehicles as expenditure, creating GST liability upon sales of demo vehicles, and maintaining separate accounts for inward and outward supplies of demo vehicles.

In conclusion, the Authority for Advance Ruling, Jharkhand allowed the applicant to claim and set-off the Input Tax Credit of demo vehicles, repairs, maintenance, and insurance under GST. The ruling was based on the premise that demo vehicles were considered capital goods used in the course or furtherance of business operations. The decision provided clarity on the admissibility of input tax credit in similar scenarios, ensuring compliance with GST regulations and facilitating business operations for entities engaged in the sale and service of vehicles for demonstration purposes.