2024 (7) TMI 1063 - AAAR - GST

Availment of Input Tax Credit - inward supply of motor vehicle which are used for demonstration purpose in the course of business of supply of motor vehicle as input tax credit on capital goods - HELD THAT - It is noted that the motor vehicles supplied for demo purpose are supplied at a discounted rate. Therefore, are treated as different category of vehicles as compared to those which are supplied for sales to the appellant - when the OEM supply vehicles for demo purpose categorised them differently than other vehicles and require the dealership to capitalised such vehicles for a period as per customary practices of the business. There are no reason not to rely on the accounting treatment of the goods to determine its classification. It is understood position that audited books of accounts show true fair position of the business. Further from the plain reading of section 17 (5) (a) (A) it is clear that ITC on motor vehicles as specified in clause 17(5(a) shall be available when further supplied. Therefore, the appellant is not holding the goods for further supply and therefore the exception in clause (A) of section 17 (5) doesn't apply to the appellant. Thus the ITC on motor vehicles used for demo purpose cannot be allowed as per the provisions of the GST Act. The Applicant is not entitled to avail the Input Tax Credit charged on inward supply of motor vehicles which are used for demonstration purpose in the course of business of supply of motor vehicle as input tax credit on capital goods. As by capitalising the motor car it is treated as asset for use in the business and therefore such motor car cannot be said to be held for further supply.

Issues Involved:
1. Entitlement to Input Tax Credit (ITC) on inward supply of motor vehicles used for demonstration purposes.
2. Interpretation of Section 17(5)(a) of the CGST Act regarding ITC eligibility.
3. Consideration of favorable rulings with similar facts.
4. Interpretation of "motor vehicles for transportation of persons."
5. Capitalization of demo vehicles and its impact on ITC eligibility.

Issue-wise Detailed Analysis:

1. Entitlement to Input Tax Credit (ITC) on Inward Supply of Motor Vehicles Used for Demonstration Purposes:
The appellant, engaged in the business of selling automobiles, sought clarification on whether they could avail ITC on motor vehicles used for demonstration purposes. The Goa AAR ruled that ITC on demo cars is not eligible for availment. The appellant argued that demo cars are used in the course of business and should be eligible for ITC under Section 16 of the CGST Act, as they are used in furtherance of business.

2. Interpretation of Section 17(5)(a) of the CGST Act Regarding ITC Eligibility:
The AAR concluded that the sale of demo cars does not fall under the exception clause of Section 17(5)(a) of the CGST Act, which restricts ITC on motor vehicles used for transportation of persons unless used for further supply, transportation of passengers, or imparting training on driving such vehicles. The appellant argued that demo cars are ultimately sold, which qualifies as "further supply," and thus, ITC should be allowed. They also contended that the expression "further supply of such motor vehicles" does not prescribe a time limit for making such supply, and the GST provisions do not specify that ITC is unavailable for outward supplies made at a lower price than the procurement value.

3. Consideration of Favorable Rulings with Similar Facts:
The appellant cited a favorable ruling by the Goa AAR in the case of M/s Chowgule Industries Pvt. Ltd., where ITC on demo vehicles was allowed. The appellant argued that the AAR should have considered this precedent, as the facts were similar. However, the AAR did not rectify its original order despite a rectification application by the appellant.

4. Interpretation of "Motor Vehicles for Transportation of Persons":
The AAR observed that the expression "motor vehicle for transportation of persons" should be construed as "motor vehicle intended for transporting passengers." The appellant contended that the demo cars are used for test drives, not for transporting passengers, and thus should not fall under the restricted category. They argued that the purpose of use should be determined by the end user rather than the manufacturer's description.

5. Capitalization of Demo Vehicles and Its Impact on ITC Eligibility:
The AAR found that demo cars are capitalized in the appellant's books of accounts, indicating they are used in furtherance of business rather than held for further supply. The appellant argued that capitalization does not change the purpose of further supply and that the vehicles are ultimately sold, fulfilling the criteria of "further supply." The AAR, however, maintained that the vehicles are treated as assets for business use and not for further supply, thus disqualifying them from ITC under Section 17(5)(a).

Findings and Discussions:
The appellate authority upheld the AAR's ruling, concluding that the demo cars are used in the business and not held for further supply. The authority noted that the vehicles are supplied at a discounted rate by the OEM and capitalized as per business agreements, which indicates they are not intended for immediate sale. The authority also considered various rulings from other states, noting divergent views on the matter but ultimately agreeing with the AAR's interpretation.

Ruling:
The appellate authority upheld the AAR's ruling, stating that the appellant is not entitled to avail ITC on motor vehicles used for demonstration purposes, as they are capitalized and treated as assets for business use, not for further supply.

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