The Appellate Authority for Advance Ruling ( AAAR ), Goa recently dispelled the claim of Input Tax Credit ( ITC ) on motor vehicles maintained exclusively for demonstration purposes by vehicle dealerships.
An appeal for Advance Ruling was filed under Section 100 of the Goa Goods and Services Act, in tandem with the Central Goods and Services Act, 2017 ( CGST Act ) by M/s Sai Service Private Limited, a dealership selling multi–brand vehicles including Maruti Suzuki, Bajaj, KTM and Chetak.
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The Appellant queried their eligibility to avail ITC charged on the inward supply of motor vehicles used for demonstration purpose in their course of business, as input tax credit on capital goods. The matter was disposed of by the Authority for Advance Ruling (AAR) ruling against the dealership’s eligibility to avail ITC.
In the Appeal before the AAAR, the Appellant reiterated their prior submissions averring that demo activity is an important prerequisite in the auto industry, thereby making it an inherent activity to the primary business function of the dealership.
The two-member Bench of Sarpreet Singh Gill, Commissioner of State Tax and Mayank Kumar, Chief Commissioner Central Tax and Customs observed that demo motor vehicles are supplied at a discounted rate and are categorized separately by the Original Equipment Manufacturer (OEM).
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Furthermore, referring to the decision of the Haryana Appellate Authority for Advance Ruling in the case of M/s Platinum Moto Corp LLP, wherein it was held that “in the very first demonstration run, demo car loses the character of the new motor vehicle and demo vehicles is sold akin to second hand goods and which is different from new vehicle and accordingly treated differently under GST law, so the demo car is not an input”.
In light of the observations made, the Appellate Authority for Advance Ruling, Goa ruled that the Appellant is not entitled to avail ITC on inward supply of motor vehicles used for demonstration purpose in the course of business of supply of motor vehicle as ITC on capital goods since the same is treated as asset for use in business and not to facilitate further supply.
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