Facts: M/s A. M. Motors submitted that it is business requirement that motor car dealer shall compulsorily acquire the demonstration vehicles from principal supplier. These purchases are capitalized in the books of accounts excluding tax components. These demo cars are used for demonstration purpose for the prospective customer and after a specific period of time, they are sold off for book value, paying the applicable taxes at the point of time.
Issues Involved: Whether input tax credit on the motor car purchased for demonstration purpose of the customer can be availed as credit on capital goods and set off against tax payable under GST in the case of a motor car dealer?
Held: The Hon’ble AAR of Kerala vide Advance Ruling No. KER/10/2018 dated September 26, 2018 held as under:
- The demo car is an indispensable tool for promotion of sales by providing test run to customers and to make them understand the features of vehicle. Further, the applicant capitalizes the purchase in its books of account. The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. As the impugned purchase of demo car is in the course or furtherance of business, applicant is eligible for input tax credit.
- In terms of Section 17(5) of the CGST Act, 2017, credit is not available on motor vehicles except when they are used for making taxable supplies and for transportation of goods. The taxable supply includes further supply of such vehicle. In the instant case, after a limited period of use as demo car, the vehicles are sold at the written down book value and applicable GST is satisfied at that point of time. GST Act does not prescribe time within which further supply is to be effected. Hence, the embargo under Section 17(5) will not apply here.
- But, 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 registered person shall pay an amount equal to the input tax credit taken on the said capital goods reduced by sch percentage points as may be prescribed or the tax on the transaction value of such capital goods determined as value of taxable supply, whichever is higher.
Hence, it is ruled that input tax paid by the vehicle dealer on the purchase of motor car used for demonstration purpose of the customer can be availed as input tax credit on capital goods and set off against output tax payable on GST.
Citation: [TS-542-AAR-2018-NT]