2018 (10) TMI 1873 - AAR - GST

Input Tax Credit of IGST and Compensation Cess - receipt of cars (on stock-transfer basis) for use in relation to specified business activities and thereafter onward supply to dealers after use by the Applicant-unit for a limited period of time - HELD THAT - There is no doubt that in the motor vehicle industry, demonstration vehicle is an indispensable tool for promotion of sales by providing trial runs to the customers. These demo cars are used for demonstration purpose for the prospective customers and after a specific period of time, these are sold off for the book value, paying the applicable taxes at that point of time - During discussions it has been shown to the authority that these demo cars are received by the applicant against tax invoices and are reflected in their books as capital assets. The general provisions for availing input tax credit on capital goods which are used or intended to be used in the course or furtherance of business are contained in section 16 (1) and section 18 (1) of the CGST/HGST Act, 2017 read with the relevant rule 43 of the CGST/HGST Rules. It is also worth noting that the specific provisions regarding admissibility of input tax credit on motor vehicles for transportation of persons upto a seating capacity of not more than 13 person are contained in section 17 (5) of the CGST/HGST Act 2017 - Since section 17 (5) of the HGST/CGST Act, 2017 starts with a non obstante clause, as per the law the admissibility of input tax credit on motor vehicles in the present case shall be as per the provisions contained therein.

Summary

Issues Involved:
1. Eligibility to avail Input Tax Credit (ITC) on IGST and Compensation Cess paid on motor vehicles received on stock-transfer basis.
2. Compliance with conditions under Section 16 and Section 17(5) of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Eligibility to Avail ITC on IGST and Compensation Cess:

The applicant, a unit of BMW India, sought to determine whether it could avail ITC on IGST and Compensation Cess paid on motor vehicles received from its Chennai unit for specified business activities, such as marketing, sales, press, and training purposes, before their onward supply to authorized dealers.

The applicant argued that these vehicles are used "in the course or furtherance of business" and are subsequently sold to dealers after limited use. They emphasized that these vehicles are capitalized due to accounting standards and Income Tax laws but are intended for further sale, thus qualifying for ITC under Section 16 of the CGST Act.

2. Compliance with Conditions under Section 16 and Section 17(5) of the CGST Act:

Section 16(1) of the CGST Act allows ITC on goods used in the course or furtherance of business, provided procedural requirements such as having a tax invoice are met. Section 16(3) stipulates that ITC cannot be claimed if depreciation is claimed on the tax component of the cost of capital goods.

Section 17(5) specifically restricts ITC on motor vehicles unless used for certain taxable supplies, such as further supply of vehicles, transportation of passengers, or training on driving. The applicant contended that their use of vehicles for marketing, sales, press, and training purposes falls within these specified taxable supplies, thus making them eligible for ITC.

Authority's Findings:

The authority noted that demonstration vehicles are essential for sales promotion in the motor vehicle industry. These vehicles, received against tax invoices and reflected as capital assets, are used for a limited period before being sold, with applicable taxes paid at the time of sale.

However, the authority emphasized that Section 17(5) of the CGST Act, which contains a non obstante clause, overrides general provisions and restricts ITC on motor vehicles unless used for specified purposes. The applicant's vehicles, used for marketing, sales, press, and training, do not fall under these specified purposes as per Section 17(5).

Ruling:

The authority concluded that the applicant is not entitled to avail ITC on motor vehicles used as per their submissions. The vehicles, although used in business activities, do not meet the conditions under Section 17(5) for availing ITC.

Conclusion:

The applicant's request to avail ITC on IGST and Compensation Cess paid on motor vehicles received on stock-transfer basis for specified business activities was denied. The ruling emphasized compliance with Section 17(5) of the CGST Act, which restricts ITC on motor vehicles unless used for specified taxable supplies.