The Authority for Advance Rulings (AAR), West Bengal bench has held that the input tax credit is available on the demo vehicles and the same can be set off against the output tax payable under the Central GST Act, 2017.
The applicant, M/s Toplink Motorcar Private Limited, is an authorized dealer of Hyundai Motor India Limited for supply of different ranges of motor vehicles and also carries on business activities as an authorized service station.
The applicant, while filing the application, has submitted that he purchases vehicles against tax invoices which are reflected in his books of accounts as capital assets and are used as demo cars for providing trial run to the customers to make them understand the features of the vehicles.
A bench comprising Mr Brajesh Kumar Singh, Joint Commissioner, CGST & CX and Mr Joyjit Banik, Senior Joint Commissioner, SGST observed that section 17(5)(a)(A) restricts input tax credit in respect of motor vehicle for transportation of persons except when they are used for further supply of such motor vehicles. The intention of the law, as it appears from the expression “for further supply of such vehicles” is to allow input tax credit in respect of taxpayers dealing with motor vehicles as they are engaged in further supply of such motor vehicles.
“We are of the view that the expression “such” bears a wide connotation which does not put any restriction in respect of supply of demo vehicles. When the applicant makes purchases of the demo vehicles, such purchases are also meant for further supply. However, as per Dealership Agreement and Test Drive Car Policy, the applicant requires capitalizing the demo vehicles and has to keep such vehicle for a specific period of time. Such activities, in any manner, do not change the purpose of further supply,” the AAR bench said.
“In our considered opinion, the word “such” as used in the expression “further supply of such vehicles” relates to the vehicle only that was purchased. It is a fact that the condition of a demo vehicle at the time of its further supply might have undergone some deterioration from the spick and span condition in which it was at the time of its purchase. But that does not detract from the reality that the vehicle when supplied by a car dealer has ceased to be such vehicle that was purchased,” the AAR bench said.
Concluding the order, the AAR bench held that “The standard business practice of a car dealer is to purchase vehicles including one or more demo vehicles for further supply of such vehicles. While non-demo vehicles are made available for sale immediately after the purchase, the demo vehicles are put up for sale after the demonstration/test drive period. The demo vehicles are purchased all along for further supply with the condition that they will be kept for a specific period of time. We therefore hold that purchase of demo vehicles and further supply of the same satisfies the condition laid down in section 17(5)(a)(A) of the GST Act.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.
