Whether input tax credit available on inward supply of motor vehicles which are used for demonstration purpose in the course of business of supply of motor vehicle

[Kapil saini]

Let us understood: -

According to Section 16(1) of the GST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course of furtherance of his business

“(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;

Now recently Case law IN RE: M/S. CHOWGULE INDUSTRIES PRIVATE LIMITED [2020 (1) TMI 741 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] <GST-ARA-18/2019-20/B-121 > dated 26-12-2019 state that input tax credit available on inward Supply of motor vehicles which are used for demonstration purpose in the course of business of supply of motor vehicles.

Facts and content of Cases

M/s. Chowgule Industries Private Limited an Authorized dealer of Maruti Suzuki India Limited for supply of motor vehicles and spares and for servicing as also for some other commercial vehicle manufacturers.

M/s. Chowgule Industries Private Limited has made purchases of motor vehicles against tax invoice which are reflecting in the books of accounts as capital goods. The vehicles are used as demo cars for providing trial run to customers to understand the features of the vehicle. This is an essential part of marketing and sales promotion to facilitate supply of cars.

As per the dealership norms with Maruti Suzuki India Limited, the applicant is required to maintain at least one Demo vehicle of each model per location. The Applicant purchases these Demo vehicles against tax invoice. The said Demo vehicles are capital goods accounted under Fixed Assets of the Company excluding GST component. The applicant has not claimed depreciation on the tax component of the said demo cars nor claimed as business expenditure u/s. 37 of the Income Tax Act. They are generally replaced every two years or 40,000 Kms whichever is earlier. The Demo vehicles are sold after paying the applicable taxes on sale value at that point of time.

According to Section 16(1) of the GST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of his business.

As per Section 2 (19), “capital goods' means goods. The value of which is capitalized in the books of accounts of the person claiming the input tax credit and which are used or intended to be used in the course of furtherance of business. The Demonstration vehicles purchased from supplier are being capitalized. The demo cars are used in the course or furtherance of business and entitled for input tax credit u/s. 16(1) of the GST Act

As per Section 17 (5) (a) the input tax credit shall not be available on motor vehicles except when they are used for making further supply of such motor vehicles. The further supply of such demo motor vehicle are made after one or two years and constitutes a taxable supply and GST is paid thereon. GST Act does not prescribe the time within which further supply is to be effected. Hence, the impugned tax credit is available.

M/s. Chowgule Industries Private Limited has filed an application with Maharashtra Advance Ruling Authority for the point that, whether input tax credit on motor vehicle purchased for demonstration purpose can be availed as credit on capital goods and the same can be set off against output tax payable.

With reference to section 16(1) and as per Section 2(19), decision of court is that “input tax credit on the motor vehicle purchased for demonstration purpose can be availed as credit on capital goods and the same can be set off against output tax payable”.