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2019 (4) TMI 150 - AAR - GSTInput tax credit - paid on purchase of motor vehicles used in providing services of transportation of passengers or renting of motor vehicles - GST cess - Compensation Cess - Held that - The CGST Act and Compensation Cess Act are pari-materia in nature and levy two separate taxes. i.e.. GST and Compensation Cess respectively on simultaneous basis on a supply of goods or services or both. Therefore, a particular supply of goods or services or both could be taxable under both the Legislations or could be taxable only under the CGST Act and not under the Compensation Cess Act or vice versa. As per Notification No.2/2017 - Compensation Cess (Rate dated 28-06-2017, services of transfer of right to use any goods is liable for Compensation Cess, whereas the rental services and passenger transport services are not liable for Compensation Cess as it does not involve transfer of right to use of motor vehicles. As per Section 2(p) of the Compensation Cess Act taxable supply means a supply of goods or services or both which is chargeable the cess under this Act. Therefore leasing supplies are taxable supply for the purpose of Compensation Cess Act and rental business Is not regarded as taxable supply for the purpose of Compensation Cess Act as the same is not chargeable to Cess under the said Act - Compensation Cess is not chargeable on rental service, being an exempted supply. The vehicles used for rental business service are generally sold after three - four years of purchase. Therefore. the sale of vehicles being taxable supply. Compensation Cess will be attracted as the sale is effected within 5 years, of such purchases. Considering provision envisaged in Sec. 17(2) of the CGST Act / SGST Act read with Sec. 11 of the Compensation Cess Act, the petitioner is eligible to take ITC of compensation Cess paid on purchase of vehicles used for rental business and subsequently, used for effecting taxable supply by way of sale on such vehicles.
Issues:
Eligibility of input tax credit (ITC) on Compensation Cess paid on purchase of motor vehicles used in providing transportation services and renting of motor vehicles. Analysis: The petitioner sought an advance ruling on the eligibility to claim ITC under the GST (Compensation to States) Act, 2017, regarding the Compensation Cess paid on the procurement of motor vehicles used for providing transportation services and renting vehicles. The petitioner operates separate divisions for renting and leasing businesses, with vehicles exclusively allocated to each division without interchange until disposal. The motor vehicles purchased for renting services are capitalized in the accounts. In the leasing business, the petitioner purchases vehicles, pays GST and Compensation Cess, and then transfers the right to use these vehicles to customers, which is considered a supply of service under the CGST Act. The petitioner uses ITC of GST and Compensation Cess paid on these vehicles for the leasing services provided. On the other hand, for renting services, the petitioner charges GST after claiming ITC on motor vehicles as per the Central Tax (Rate) Notification. Rental services do not attract Compensation Cess, so the petitioner avails ITC of GST only, excluding Compensation Cess paid during vehicle purchase. The Compensation Cess Act and CGST Act levy separate taxes on supplies of goods or services. Services involving the transfer of right to use goods attract Compensation Cess, while rental and passenger transport services do not. The definition of "taxable supply" under the Compensation Cess Act clarifies that leasing supplies are taxable, while rental services are exempted. The Compensation Cess is not levied on rental services but applies to the sale of vehicles within five years of purchase. The provisions of the CGST Act and ITC rules apply to the Compensation Cess Act concerning the utilization of ITC. Rule 43 of the CGST Rules outlines the reversal of ITC for goods used for both taxable and exempt supplies. The petitioner can claim ITC of Compensation Cess paid on vehicles used for rental business and reverse a proportionate amount monthly based on exempted supply usage, utilizing the balance for Compensation Cess liability on vehicle sales. In conclusion, the ruling confirms the petitioner's eligibility to claim ITC on Compensation Cess paid for vehicles used in rental services. The petitioner must reverse ITC monthly over 60 months based on exempted supply usage and utilize the remaining ITC for Compensation Cess liability on vehicle sales.
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