2024 (8) TMI 375 - AAR - GST

Availability of input tax credit - inward supplies of goods or services which are in the nature of direct expenditures like spare purchases, repairs and refurbishment costs of vehicles, etc., except on purchase of old or used motor vehicles - inward supplies of other goods or services except on purchase of old or used motor vehicles - N/N. 8/2018-Central Tax (Rate) dated 25th January 2018. Admissibility of input tax credit of tax paid on various activities relating to the subsequent marginal sale of old and used luxury cars purchased from both registered and unregistered persons - HELD THAT - The applicant is a regular taxpayer registered under the CGST/KSGST Act, engaged in the business of buying and selling of second hand goods such as old used luxury cars. When a used car is purchased from a customer, initially the applicant evaluates both external and internal condition of the vehicle by using both technology as well as the service of technically qualified persons. Then they decide the additional services such as refurbishment of the vehicle and replacement of spares or body parts, if any, for scaling up the value of the vehicle which are required for subsequent sale. The applicant either uses their own service station or external service stations to repair and refurbish such used vehicles. Where a registered person who is engaged in the supply of buying and selling of second hand goods such as used motor vehicles without availing any credit of input tax on the taxes paid at the time of purchase of such goods i.e, used motor vehicles, the GST at the rate as specified in the aforementioned notification shall be payable by such registered person on the value of supply that represents the margin of the registered person. Further, both sub-rule (5) of rule 32 of the CGST Rules, 2017 as well as the notification referred in this ruling not mandating the non availment of credit of input tax on the taxes paid for receipt of goods or services other than the credit of input tax on the taxes paid at the time of purchase of used cars to get the benefits available under the said rule and notification. Eligibility of input tax credit of tax paid on purchase of spare parts, refurbishment services of vehicles and professional charges for scaling up the sale value of such used vehicles - HELD THAT - Sub-section (1) of section 16 of the CGST Act provides that subject to such conditions and restrictions and in the manner specified in section 49 of the CGST Act, a registered person is entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business - The conditions for availment of credit of input tax charged on any supply of goods or services or both are prescribed in subsection (2) to sub-section (4) of section 16 of the CGST Act. Further, section 17 of the CGST Act provides restrictions and blocking of input tax credit for certain supplies on which tax has been charged. Neither sections 16 and 17 of the Act nor the notification No. 08/2018-CT (Rate) dt 25.01.2018 restricts the eligibility of input tax credit of tax paid on direct and indirect expenses incurred in the business of second hand sales of luxury cars engaged by the applicant. The applicant would be eligible to claim input tax credit of tax paid on both direct and indirect expenses such as repairs and refurbishment works of used vehicle, spare purchases, office stationary, telephone, rent, advertisement, professional charges, etc, utilized in second hand business of luxury cars, subject to the conditions prescribed under section 16 to section 21 of the CGST Act and rules 36 to 45 of CGST Rules.

Summary

Issues Involved:

1. Availability of input tax credit (ITC) on inward supplies of goods or services which are direct expenditures like spare purchases, repairs, and refurbishment costs of vehicles.
2. Availability of ITC on inward supplies of other goods or services like office/showroom rent, telephone, advertisement, professional charges, capital goods, etc.

Issue-wise Detailed Analysis:

Issue 1: Availability of ITC on Direct Expenditures

The applicant, engaged in the business of buying and selling old and used luxury cars, requested a ruling on whether ITC is available on inward supplies of goods or services that are direct expenditures, such as spare purchases, repairs, and refurbishment costs of vehicles, except for the purchase of old or used motor vehicles as mentioned in Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018.

The applicant contended that as per sub-section (1) of section 16 of the CGST Act, every registered person is entitled to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business. Rule 32(5) of the CGST Rules provides that the value of supply for second-hand goods is the difference between the selling price and the purchase price, provided no ITC has been availed on the purchase of such goods.

The applicant argued that Notification No. 08/2018-CT (Rate) restricts ITC only on the inward supply of old or used vehicles from registered persons and does not restrict ITC on other inward supplies such as spares, repairs, refurbishment costs, etc.

Upon examination, the Authority concluded that the applicant would be eligible to claim ITC on direct expenses like repairs and refurbishment works of used vehicles, spare purchases, etc., subject to the conditions prescribed under sections 16 to 21 of the CGST Act and rules 36 to 45 of the CGST Rules.

Ruling for Issue 1:

ITC is available on inward supplies of goods or services which are direct expenditures like spare purchases, repairs, and refurbishment costs of vehicles, subject to the conditions prescribed under sections 16 to 21 and rules 36 to 45 of the CGST Act and Rules.

Issue 2: Availability of ITC on Other Expenditures

The applicant also sought clarification on the availability of ITC on inward supplies of other goods or services like office/showroom rent, telephone, advertisement, professional charges, capital goods, etc., except for the purchase of old or used motor vehicles as mentioned in Notification No. 8/2018-Central Tax (Rate).

The applicant maintained that these expenses are necessary for the furtherance of their business and should be eligible for ITC. They cited sub-section (1) of section 16 of the CGST Act, which allows ITC on any supply of goods or services used in the course or furtherance of business.

The Authority examined the conditions and restrictions under sections 16 and 17 of the CGST Act and found no provisions restricting ITC on such indirect expenses. The Authority also noted that Notification No. 08/2018-CT (Rate) does not mandate the non-availment of ITC on taxes paid for goods or services other than the purchase of used cars to benefit from the notification.

Ruling for Issue 2:

ITC is available on inward supplies of other goods or services like office/showroom rent, telephone, advertisement, professional charges, capital goods, etc., subject to the conditions prescribed under sections 16 to 21 and rules 36 to 45 of the CGST Act and Rules.

Conclusion:

The Authority for Advance Ruling, Kerala, ruled that the applicant is eligible to claim ITC on both direct and indirect expenses related to their business of second-hand luxury cars, provided they comply with the conditions and restrictions under the CGST Act and Rules.