Facts: M/s Orix Auto Infrastructure Services Ltd. (“the Applicant”) is supplying services of transportation of passengers or renting of Motor Vehicles with or without chauffeurs and also leasing of vehicles. In course of business, while providing these services the Applicant was discharging GST @ 12% after claiming ITC on GST paid on motor vehicles used for renting business in terms of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017. As renting services are not liable for compensation cess, the Applicant was availing Input Tax Credit (ITC) of GST component only and not that of Compensation Cess paid at the time of purchase of the Motor Vehicles.
Applicant’s Interpretation of Law: The Applicant operates renting and leasing business as two separate divisions. With an intent to provide efficient customer services, it substituted new vehicles once in three to four years. Further, the old vehicles were sold on outright basis to third party customers as part of regular business practice and on such sales, they were paying GST and Compensation Cess. In this respect, the Applicant approached the Authority for Advance Ruling seeking the following.
Issues Involved: Whether the Applicant is eligible to take credit of compensation cess paid on purchase of vehicles used for rental business which is intended to be used in furtherance of business?
Held: The Hon’ble AAR, vide Advance Ruling No. KER/38/2019 dated March 02, 2019 held that the Applicant was eligible to ITC of entire Compensation Cess paid on purchase of vehicles used for rental business subject to monthly reversals in terms of Rule 43 of CGST Rules. For the purpose of Compensation Cess Act, while leasing supplies are taxable supply, rental business is exempted supply.
Considering provision envisaged in Section 17(2) of CGST/SGST Act read with Section 11 of Compensation Cess Act, ITC of Compensation Cess paid on purchase of vehicles used for rental business and subsequently for effecting taxable supply by way of sale on such vehicles after use is admissible. Further, in terms of Rule 43, ITC claimed shall be reversed every month equally apportioned over the prescribed period of 60 months to the extent of usage of exempted supply of service.
Citation: [2019] 104 taxmann.com 9 (AAR – KERALA)