Whether ITC on Motor Car purchased for Demo purpose can be availed as credit ?

Whether ITC on Motor Car purchased for Demonstration purpose can be availed as credit on capital goods & set off against output tax payable under GST ?.

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This issue is arises in front of "M/s Chowgule Industries Private Limited' having GSTN 30AACCC9272H1ZT. 

They filed an application under section 97 of CGST Act, 2017 and Goa GST Act, 2017 for seeking an advance ruling on aforesaid question.

The Company is an authorised dealer for Maruti Suzuki India for sale of motor vehicles and spares and for servicing as also for some other commercial vehicle manufactures. 

Facts of Case
  • The Company purchases vehicles against invoices.
  • These vehicles was shown as Capital Asset in its book.
  • The vehicles are used a demo cars for providing trial run to customers.
  • As per the dealership norms every sales outlet is bound to at least one demo vehicle of each model.
  • The vehicles are usually held for 2 years or 40,000Km whichever is earlier & then sold.
Interpretation of Law:-
  • As per sec 16(1), every person shall be entitled to take input tax credit on every supply of goods or service or both which are used or intended to be used in course or furtherance in business.
  • The vehicles purchases are Capitalised in it's book and the capital goods which are used in the course or furtherance of business is entitle for ITC.
  • As per sec 17(5), ITC shall not be available in respect of motor vehicle except when they are used in making taxable supply and for
      •  transportation of goods or passengers
      • imparting training on driving flying navigating such vehicles.
  • The demo vehicles are being used only for a specified period.
  • Later on when the demo vehicles are sold at the WDV, GST is charged at the prescribed rate.
  • The GST Act does not prescribed the time within which time further supply is to be affected.
  • Hence Provision of section 17(5) will not be available.
  • So, the Company is entitle for ITC on demo vehicle.

Extract from the Order of Advance Ruling Authority
  • The Input tax on the Motor vehicle purchased for demo purpose can be availed as Input Tax Credit on Capital Goods.
                             [Source:gstcouncil.gov. in/rulings]

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