GST update on admissibility of Input Tax Credit on the services related to motor vehicles

[Pradeep Jain]

GST update on admissibility of Input Tax Credit on the services related to motor vehicles:-

Section 17(5) of the CGST Act, 2017 prescribes the list of blocked credits and this lists allows the ITC on few goods and services on conditional basis. The relevant part of section 17(5) reads as follows:-

"(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(a) Motor vehicles and other conveyances except when they are used––

(i) for making the following taxable supplies, namely:-

 (A) Further supply of such vehicles or conveyances; or

 (B) Transportation of passengers; or

(C) Imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) For transportation of goods;"

Thus, ITC is not allowed "in respect of" motor vehicles and other conveyances except in specified cases. There has been a lots of discussion on the phrase "in respect of" as used in the above clause. Some experts are of view that it has wider impact and covers all the goods and services that are relatable to motor vehicles. The other school of thought is of the view that this phrase is very restricted and is limited to ITC on the purchase of motor vehicles.

Earlier the twitter reply by department clarified that the credit on repair and maintenance of vehicle will not be allowed. However, recently, government has given clarification on this aspect by issuing FAQ. This clarification has been given as follows:-

"Whether GST paid on insurance and repairs on vehicles is allowed, when vehicles is used for Business purpose only?

ITC is allowed."

Thus, Government is also changing its stand. The Government has taken restricted meaning of phrase "in respect of" in recent clarification and has clarified that the restriction contained in this clause will be restricted to purchase of motor vehicle only. All the other related activities will be outside the purview of this restriction. Thus, going by this clarification, all the other services that are related to motor vehicles are admissible as input tax credit. It is worthwhile to mention here that these FAQs have no legal validity, but since the language has different interpretations; we can definitely follow the same.

The content of this GST update is for educational purpose only and not intended for solicitation.

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Discussions to this article

[JAIPRAKASH RUIA]

When the clear cut guide lines are not there, below points go in favour of taking the credit.

1) Concept of GST endorse the seamless credit.

2) Explanation given for 17(5)(c&d) for construction also endorse the restriction to the extent of capitalisation.

3) Credit blocked mainly for Construction and the expenses which are mainly incurred directly for personal use and difficult to differentiate between personal and furtherance of business. in case of Vehicle which is registered in company name may be considered as expenses for furtherance of business.

4) GST is mixture of Excise, service tax and service tax, in case of purchase of Vehicle, VAT Credit was restricted but service tax charged on repairing and insurance premium was not restricted till the vehicle is used for business purpose.

CREDIT SEEMS IN FAVOUR OF TAXABLE PERSON WHEN THERE IS NOT JUDICIAL ORDER BEING A NEW TAX.

 

[Ganeshan Kalyani]

A clarificatory circular is expected from the govt for better clarity on the subject.