GST Update No 242 on availability of ITC on demo cars

The availability of Input Tax Credit on demo cars has been a matter of extensive litigations and disputes since inception of GST regime. The confusion in this respect prevails in the minds of taxpayer day in and day out. Despite of various advance rulings are sought by the aggrieved applicants, it is quite disheartening that the issue under consideration has not come to an end. Once again, one more advance ruling was reported in the same beeline before West Bengal AAR in the case of M/s Toplink Motorcar Private Limited. The decision imparted in this case is subject matter of our present update. The applicant is an authorised dealer of Hyundai Motor India Limited for supply of various ranges of motor vehicles and carrying on business activities as an authorised service station. The applicant submitted that the vehicles were purchased against the tax invoices and are capitalised in the books of accounts. The vehicles are displayed as demo cars for customers to make them understand the features of vehicles. Advance ruling was sought by the applicant as to whether the input tax credit shall be available in respect of outward sale of vehicle. The applicant submitted that the demo cars purchased are an essential part of marketing and sales and promotion to facilitate sale of cars. Reliance was placed on various advance rulings such as M/s Titania Products Private Limited, M/s Titan Motocorp, M/s Singhania Future Private Limited wherein the Jharkhand AAR delivered that Input credit can be availed on demo cars subject to certain prescribed conditions which are as follows: - 1. Maximum of one demo car of each model must be maintained by the company till final disposal and before acquiring new demo car. Further, it should be shown as capital goods. 2. No depreciation is to be claimed on it. 3. GST Liability is to be created upon sale of demo car u/s 18 4. Separate account is to be prepared of inward and outward supply of demo cars along with balance sheet and P&L. Reliance was also placed on the advance ruling pronounced in the matter of Chowgule Industries (P) Ltd and decision of Kerala AAR in the case of M/s A.M. Motors wherein it was delivered that no restriction is imposed u/s 17 of CGST Act, 2017 and thereby, input tax credit can be availed by the taxpayer. The Revenue refrained from expressing any view in this respect. The AAR observed that applicant is engaged in business of supplying cars to the customers for which demo cars are also purchased for demonstration/ test drive purpose. The demo cars are kept with applicant only for limited purpose. In this respect, it was held that a test dive policy was furnished by the applicant wherein usage time of demo cars is to be 12 months from the date of approval. These demo cars are supplied further at applicable tax rates once the test drive period is over. Reference was made to Section 16 and 17 of CGST Act, 2017. It was held that the applicant maintains a stock of demo vehicle and thereafter supplies the same at lower price. Further, in accordance with the restriction u/s 17 (5)(a)(A) of CGST Act, 2017 i.e. ITC shall be available provided supplier is engaged in making further supply. However, since no there is no time limit prescribed for making further supply, ITC shall be available to the taxpayer being in the course and furtherance of business. Further, the word “such” in the said Section bears a wide connotation and does not put any restriction in respect of supply of demo cars. Therefore, it was concluded that the input tax credit in this respect can be claimed by the applicant concerned. The above ruling although being in favour of the trade and industry has once again increased the burden of taxpayers and does not serve the desired objective. There had been various divergent rulings pronounced by the AAR as regards to the subject matter. To illustrate, Haryana AAR in the case of M/sBMW India Pvt. Ltd., M/s Platinum Motocorp LLP delivered that input tax credit shall not be available on demo cars. Although it is well known that the advance rulings are pro-revenue, however, a due clarification from Government’s end is what is anticipated at the earliest possible to put an end to these unwanted litigations in the near future. Failing this, the assesses will continue to suffer the ill-effects and harassments from the revenue department in addition to high cost of litigation.

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GST Update No 242 on availability of ITC on demo cars

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