The West Bengal Authority of Advance Ruling ( AAR ) has determined that a GST of 18% must be paid on the sum received by the applicant from Mercedes-Benz India as reimbursement for the “Loss on Sale of Demo Car.”
It was noted that the funds received from Mercedes-Benz India as reimbursement for the “Loss on Sale of Demo Car” should be considered as payment received for providing services related to “agreeing to tolerate an act.”
The applicant serves as an authorized agent for Mercedes-Benz India, responsible for facilitating the sale of Mercedes-Benz passenger vehicles, including the Mercedes-Benz EQ (electric cars).
Under the agreement between the applicant and Mercedes-Benz India Pvt. Ltd., the applicant is part of a network of authorized agents and operates as a self-employed commercial agent, brokering vehicle sales on behalf of Mercedes-Benz with the aim of supporting the company’s direct sales to end-customers.
The applicant sought an advance ruling to determine whether they can claim input tax credit on the GST charged and paid for cars obtained from Mercedes-Benz India for demonstration purposes, commonly referred to as demo cars.
The applicant also inquired about the classification and tax rate applicable when selling demo cars, as well as whether the reimbursement from Mercedes-Benz India for the “Loss on Sale of Demo Car” constitutes a supply. These demo cars are purchased from Mercedes Benz India at a discounted price, with the GST liability duly paid during these transactions.
The Authority Bench of Tanisha Dutta and Joyjit Banik concluded that the applicant can indeed claim input tax credit on cars used for demonstration purposes and subsequently sold after a specified period.
The ruled that these vehicles fall under Chapter 8702 or 8703 for classification purposes, with the same tax rate applicable for their sale as for their purchase, subject to Section 14 of the GST Act.
It was added that, “We find that ‘agreeing to tolerate an act‘ having SAC 999794 is classifiable under ‘Other Miscellaneous services‘ and is taxable @ 18% vide serial number 35 of Notification No. 11/2017-Central Tax I (Rate) dated 28.06.2017, as amended.”
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