GST Update on Admissibility of Input Tax Credit On Repairs Of Motor Vehicles

Input tax credit on the motor vehicles has been restrictive one in the Central Excise and service tax regime as well as in the present GST regime. Section 17(5) of the CGST Act, 2017 prescribes the list of blocked credits and this lists allows the ITC on the motor vehicles on conditional basis. The relevant part of section 17(5) reads as follows:-

"Input tax credit shall not be available in respect of the following, namely:—
(a) Motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
(A) Further supply of such vehicles or conveyances; or
(B) Transportation of passengers; or
(C) Imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) For transportation of goods;"

The analysis of above portion of the section 17(5) makes it clear that the ITC on motor vehicles and other conveyances is allowed on conditional basis. The language of section 17(5) as highlighted above uses the phrase "in respect of". This phrase is not defined or analyzed anywhere in the GST law. Further, we have not found a single case law analyzing this phrase.
However, earlier under Cenvat Credit Rules, 2004 the definition of "inputs" had the similar words "in relation to". A lot of case laws were decided by analyzing this phrase by holding that the term "in relation to" is very wide and covers all goods which are either directly or indirectly used in manufacture of final products. This analogy was drawn in the case of NATIONAL CO-OPERATIVE SUGAR MILLS LTD. Versus COMMR. OF C. EX., MADURAI [2016 (344) E.L.T. 832 (Mad.)] and COMMISSIONER OF C. EX., NAGPUR Versus ULTRATECH CEMENT LTD. [2010 (260) E.L.T. 369 (Bom.)]. On the basis of a number of decisions decided on the basis of analogy drawn by hon'ble High Courts in these cases, credit was allowed on variety of goods that were either directly or indirectly used in manufacture of final products.

Under existing GST regime, the phrase used is "in respect of". This phrase has neither been defined anywhere nor any case law is available on the same. Further, if we consider the general meaning of this phrase, it is treated as synonym of "as regards", "in terms of", "with respect to" or "in accordance with", etc. These words are more or less used interchangeably. Thus, one can interpret that the phrase "in respect of" can be used as a synonym of "in relation to". Therefore, the decisions given in respect of phrase "in relation to" will hold good in this case also. If this interpretation is taken, we can conclude that the clause (1) of section 17(5) of CGST Act will be deemed to be wider in scope in order to restrict each and every types of ITC that is related to any "motor vehicle", i.e. to say, it will deny the ITC on purchase of motor vehicle as well as repairs and maintenance and any other expenses related to motor vehicle.

However, another stream of views is there interpreting the term "in respect of" as contained in section 17(5) of CGST Act, 2017. It has been interpreted that the phrase "in respect of" is very restrictive in nature and it will cover only the ITC involved in purchase of motor vehicle. All the other expenses will be eligible to ITC. This interpretation is based upon the fact that repairs and maintenance of motor vehicles is nowhere denied in section 17(5) or any other provision of CGST Act, 2017. When the ITC is not specifically denied, it is allowed on repairs and maintenance of motor vehicle; as opined by a stream of experts.

It is worthwhile to mention here that the first view of treating the phrase "in respect of" in conjunction with the term "in relation to" is appears more feasible. The reason behind this is that the restrictions contained in the section 17(5) of CGST Act, 2017 are more or less similar to the exclusions contained in the rule 2(l) of the Cenvat Credit Rules, 2004. In this regard, it is worthwhile to mention here that under Cenvat Credit Rules, 2004; credit of expenses incurred on motor vehicles like insurance, repairs and maintenance, etc. of motor vehicle was specifically denied under clause (B) and (BA) of definition of input service if the motor vehicle did not fall in the definition of "capital goods" as given in the rule 2(a) of the Cenvat Credit Rules, 2004. Further, even the other provisions and restrictions regarding the availment of credit in GST regime has been carried forward with original spirit of Cenvat Credit Rules, 2004. Therefore, in our view, looking the drafting of the said section 17(5) read with the Cenvat Credit Rules, 2004; the term "in respect of" should be interpreted in broader sense and the ITC of expenses related to motor vehicles like repairs and maintenance, etc. should not be allowed.
The views of all our readers as well as of experts are invited so that we can reach to a conclusion.

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GST Update on Admissibility of Input Tax Credit On Repairs Of Motor Vehicles

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