2019 (7) TMI 844 - AAR - GST

Input tax credit - capital goods - Motor Vehicle purchased for demonstration purpose - credit availed on Capital Goods and set off against output tax payable under GST - HELD THAT - The availability of input tax credit shall be subject to the provisions of section 18(6) of the GST Act. In the case of supply of capital goods on which input tax credit has been taken the register person shall pay an amount equal to the input tax credit on the said capital goods reduce by such percentage of points as may be prescribed or the tax on transaction value of such capital goods determined as value of taxable supply, whichever is higher. In the instant case, the applicant purchases demo vehicles against tax invoices from the supplier after paying taxes. The demo vehicle is indispensable tools for promotion of sale by providing trail run to the customer. The applicant capitalizes the purchase of such vehicles in the books of accounts. The capital goods which are used in the course or furtherance of business is entitled for Input Tax Credit. The Input Tax Credit on the Motor Vehicle purchased for demonstration purpose can be availed as Input Tax Credit on Capital Goods and set off against output tax payable under GST.

Summary

Issues:
1. Whether Input Tax Credit on the Motor Vehicle purchased for demonstration purpose can be availed as credit on Capital Goods and set off against output tax payable under GST.

Analysis:
The application was filed under section 97 of the Goa Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Act, 2017 by a Private Limited Company seeking an Advance Ruling regarding the Input Tax Credit on Motor Vehicles purchased for demonstration purposes. The applicant, an authorized dealer for vehicle manufacturers, purchases vehicles for demo purposes to provide trial runs to customers for marketing and sales promotion. These demo vehicles are held for a specific period and then sold, with applicable GST paid on the selling price.

During the hearing, it was highlighted that as per section 16(1) of the GST Act, every person is entitled to take input tax credit on goods or services used in the course or furtherance of business. The vehicles purchased by the applicant are capitalized in their books of accounts and used for demo purposes, making them eligible for input tax credit as capital goods under section 2(19) of the GST Act.

Section 17(5) of the GST Act restricts input tax credit on motor vehicles unless they are used for specific purposes like making taxable supplies, transportation of goods/passengers, or imparting training. However, in this case, the demo vehicles are used temporarily for marketing purposes and later sold, making them eligible for input tax credit. The provision of section 17(5) does not apply as the time for further supply is not specified.

The ruling under section 98 of the CGST/GGST Act, 2017 concluded that Input Tax Credit on Motor Vehicles purchased for demonstration purposes can be availed as credit on Capital Goods and set off against output tax payable under GST. The applicant was deemed eligible for input tax credit on demo vehicles used for marketing and sales promotion, as they qualify as capital goods used in the course or furtherance of business.

This detailed analysis of the judgment provides a comprehensive understanding of the legal interpretation and application of input tax credit rules regarding motor vehicles purchased for demonstration purposes under the GST Act.