Input tax credit should be allowed for motor car to all when used in furtherance of business and in “supply”, including services on which GST is levied

[CA DEV KUMAR KOTHARI]

Links of some of related provisions:

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017:

Links for some important definitions / meanings  for the purpose of study:

Meaning of business S. 2.17

Meaning of Capital goods – 2.19,

Meaning of Conveyance -2.34

Meaning of motor vehicle 2.76

Meaning of input tax – s.2.62

Meaning of input tax credit S. 2.63

Meaning of Supplier S. 2.105

Meaning of taxable supply S. 2.108

Value of taxable supply S. 15

Apportionment of credit and blocked credits S. 17

Availability of credit in special circumstances S. 18

Corresponding provisions in other related enactment may be referred to.

Higher GST on motor car is based on intelligible differential:

There is no doubt that higher rate of GST in comparison to other goods is justified for the reason of paying capacity of tax and it is based on intelligible differentia. However the rate is very high and it should be brought down for other economic reasons that manufacture, marketing and plying of motor cars all add to employment.

Not allowing ITC on cars is not based on intelligible differentiation:

However, provision which denies ITC in respect of cars are not based on intelligible differentia on. When car is used in any business or profession supply and / or services of which are taxable, there is no reason for denying ITC in most of cases where car is used as “capital input  goods” and depreciable assets having short to medium term of useful life.

Denial of ITC is just due to bias of people engaged in drafting provisions. It is due to not understanding business.

Car is a semi durable capital asset:

Car is a semi durable capital assets. Depending on   nature of user, intensity of use, method of use, and conditions in which it is used its useful life is determined.

Ideally in case of extensive use a car need to be replaced between 2-3 years and in case of lesser use it may be between 4-5 years. In case of self-driven cars with lesser use also ideally a car need replacement within 6-7 years.

At the time of replacement the old car fetches about 15-20 % of cost of old car and  new car of same model is priced about 15-20% higher of original cost. Therefore, there is consumption of capital cost of old car to the extent of 80-85%.

In case of accidents met by car, its life can come to end at any time , therefore, life is also uncertain.

Therefore, one can also take a view that car is a consumable assets which is consumed within a short period

Car is used in furtherance of business or profession:

Car is used in furtherance of business and profession. Depending on status of businessman and professional man suitable car is required for business and professional purposes. If the car is used in “supply” ( of goods and/ or  service) on which GST is payable, then there is no reason for not allowing ITC paid on car which is used as a capital goods of semi durable nature of short to medium term).

For example, car used by a businessman in attending his own offices business places and  for meeting customers, suppliers, service providers, advocates, CA, other consultants for the purpose of business or profession is use of car in furtherance of business.

Car used by professionals in attending his own offices and in  meeting clients, attending office of clients, attending conferences etc. is used in furtherance of business and profession and is required for rendering services.

ITC is allowed on other assets:

When ITC is allowed in respect of many capital goods whose life is much longer, there is no reason for not allowing ITC in respect of car which are used in business or profession and have shorter life.

When ITC is allowed to a dealer in car who purchase car for reselling, ITC is also allowed in case of some sort of usages of car, therefore there is no reason for not allowing ITC in respect of car purchased by paying GST and used in furtherance of business or commerce.

Legal provisions:

Readers are requested to refer to latest provisions and provisions as applicable at any relevant times. Such provisions are available on this website and can be easily searched. Therefore, links for all provisions are not added. Few links are added for convenience and illustration for undertaking study with related provisions.

Request to honorable Prime Minister and Finance Minister:

Author request to them and also to the members of GST council to realize ground realities, and come above bias and presumptions and try to understand role of cars in business and profession and consider importance and allow ITC on all supply of goods and services and capital goods which are used in supply of taxable goods and services.

Ground reality is that sale promotion is primary activity, unless reasonable sales projections are available manufacturing plans cannot be made. Unless sales take place, manufacturing cannot continue.

The case of cars is an illustration, all other items should also be considered on which ITC is not allowed for example payments to  clubs is also an important input when  club facilities are used to promote sale. Samples of medicines is essential to promote sales of medicines.

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CA  Dev Kumar Kothari and CA Rajendra Kumar Rathi

Discussions to this article

[KUMAR JAGADEESAN]

The Authors try to justify their demand for ITC on Motor vehciles which is disallowed under section 17(5) of the GST Act. I feel that the Government is justiifed in disallowing the same for the following reasons

(1). With my experience in the industry for over three decades I have seen corporates spend huge amounts on luxury cars which are mainly used for their family members use or for their employees use and may be a part of it is for official duties . There is no way the Government can ensure that such means of transport is used for offical purpose only

(2). Even if ITC is not available the entire cost of the capital asset is capitalised and allowed as depreciation for the professioanls (which is inclusive of any GST paid on them) and as such there is no loss on account of denial of such ITC to the professioanls as claimed.

(3). The fees or service charges levied by the professioanls on thier clients are not in any way related to the extent of usage of motor vehicles as it is detremined by the time and effort in rendering such services. Unlike other businesses, services by professionals are not cost based but skill based and market related. The moot question is how and by what mechanism the ITC or part of it is going to be passed on their clients

I sincerely feel that the demand is not justified

J.KUMAR

Advocate

[Ganeshan Kalyani]

In today's time every body is too busy in their work. A businessman, salaried person, daily worker etc. all are busy. Nobody has time to speak to their relatives, friends and also sometime to their own family members. The amount of responsibilities cast upon a person is also high. Expectation from employee by the employer is like expecting an ant to lift a mountain. In such factual situation a motor car given by the company to key employee cannot be said to be used it for personal purposes. It must be used by such employee in course or furtherance of business. Or it is used by the employee to ply from home to office and back which also is an official task. In view of the present world existing the input tax credit on motor vehicle should be allowed.