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TMI Blog2023 (8) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchaser in case of an intention to lease, rent etc. - Hence capitalizing the motor vehicle purchased does not make the tax paid on their purchases ineligible for ITC if there is a further supply of such motor vehicles within the meaning of Section 7 of CGST Act, 2017. For example supply of cars for lease / rent etc., can not be made without them being capitalised in the books of such supplier. And, whether the applicant is eligible for ITC depends on occurrence of a future event i.e., either he retains the vehicle in his work shop as a replacement vehicle or sells such vehicles. (i) If the applicant is making further supply of such vehicle is eligible for the ITC claimed. (ii) if the applicant is retaining the vehicle for his workshop as replacement vehicle as mentioned in the sales policy of MSIL, he shall not be eligible for ITC as there is no further supply at his hands. Therefore, the ITC claimed by him has to be repaid in cash in view of the amended section 16(4) notified vide notification No. 18/2022, Central Tax dt. 28.09.2022 w.e.f: 01.10.2022. - SRI S.V. KASI AND SRI SAHIL INAMDAR, MEMBER [ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered unlike normal vehicles further, this model of demo cars are used for demonstration for a period of two years or 40,000 KMs whichever is earlier. These vehicles are used for providing test drives to its potential customers, in order for them to understand the look and feel of the vehicle. Basically, due to the changing demands of the customers and to adhere to their requirement this works as an essential part of sales promotion activity with facilitates sale of cars. It is also an important element for executing sales. As per dealership norms with MSIL, the Applicant is required to procure these vehicles at base model level (per fuel type) up to a maximum of two units per showroom. The policy document is enclosed herewith and marked as Annexure-2. These demonstration vehicles are procured by the Applicant from MSIL against a tax invoice. MSIL provides these vehicles at a discount on the basic price of vehicle (post launch price in case of a new model/variant) as per the MSIL policy. These vehicles are capitalized in the books of accounts as Fixed Assets. Presently, as the Applicant does not claim input tax credit of the tax paid on these vehicles. The Applicant cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Applicant would like to place reliance upon the provisions of Section 16(1) of the CGST Act, which states that: Quote *Section 16. Eligibility and conditions for taking input tax credit.- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. Unquote To further evaluate the aspect of ITC eligibility, it is important to refer to the following definitions provided under Section 2 of CGST Act, 2017 which states that Quote (59) input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business; (60) input service means any service used or intended to be used by a supplier in the course or furtherance of business (19) capital goods means goods, the value of which is capitalized in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or activities including incidental or ancillary to trade, commerce, manufacture, profession, vocation, adventure or wager or other similar activities are covered. It is immaterial whether such transactions whether such transactions are for pecuniary benefit or not. 2.4 The table below represents how all the conditions pursuant to Section 16(1) of the CGST Act, 2017 are fulfilled by the Applicant Sr.No. Condition Fulfilled by the Applicant 1 (a) Every registered person The Applicant has taken registration under GST in the state of Telangana vide GSTIN 36AABCS4998M1ZK 2 (b) be entitled to take credit of input tax charged on any supply of goods or services or both to him The Applicant is eligible to take credit of Input tax charged on such demo vehicles while purchasing. 3 (c) which are used or intended to be used The Applicant as mentioned above purchases these demo cars which are used for the purpose of test drive or which are further inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any proceedings in the applicant s case under any of the provisions of the Act. 3. During the course of hearing, the authorized representatives have brought forth the following arguments: a. That they are in the business of selling cars and they are under an obligation from the manufacturer to purchase cars for demonstration to the customers. b. That they are under obligation to hold these cars for a minimum period of (2) years or till the time the car runs for a minimum of 40000 KM without making further sale of the same and that the further sale in contravention of these conditions will attract severe penalty from their sellers. Therefore the car is categorized as an asset and capitalized as per the Accounting Standards of India. c. That hence they capitalize their purchases. That the clause (a) of sub section (5) of section (17) of the CGST Act, 2017 does not rule out the exception to the general provisions therein on the ground that the purchases are capitalized. They brought to the notice of AAR that the vehicles purchased by persons who intend to use for transport of passengers or to impart training in driving such motor vehicles also capitalize purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealer workshop for use as a replacement vehicle. In case a dealer is already holding the required number of replacement vehicles in his workshop, the test drive vehicle can be sold in True Value. However this will require approval from the respective Regional Manager and the Regional Service Manager. No test drive vehicle can be sold without prior written approval of the Regional Manager and the Regional Service Manager. e) Regional office has to regularly monitor the correct usage of the Test drive vehicle and if any dealer is found misusing the test drive vehicle, then the Regional Office can impose a penalty on that dealer by sending a request directly to SLP. f) In case it is found that any test drive vehicle has been sold without the written approval of the Regional Manager and the Regional Service Manager or the test drive vehicle is being used for purposes other than test drives, an amount equal to FIVE TIMES the discount amount credited would be debited from the Dealer's account. As seen from the test vehicle policy of the vendor to the applicant, the vehicle will be registered in the name of the company/dealership and can be retained as a test vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is made not only for sale of motor vehicles but for the purpose of lease, rent etc., wherein there is no immediate transfer of property in goods and such motor vehicle may be capitalized in the books of the purchaser in case of an intention to lease, rent etc., Hence capitalizing the motor vehicle purchased does not make the tax paid on their purchases ineligible for ITC if there is a further supply of such motor vehicles within the meaning of Section 7 of CGST Act, 2017. For example supply of cars for lease / rent etc., can not be made without them being capitalised in the books of such supplier. And, whether the applicant is eligible for ITC depends on occurrence of a future event i.e., either he retains the vehicle in his work shop as a replacement vehicle or sells such vehicles. (i) If the applicant is making further supply of such vehicle is eligible for the ITC claimed. (ii) if the applicant is retaining the vehicle for his workshop as replacement vehicle as mentioned in the sales policy of MSIL, he shall not be eligible for ITC as there is no further supply at his hands. Therefore, the ITC claimed by him has to be repaid in cash in view of the amended secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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