INPUT TAX CREDIT AVAILMENT ON SUBSIDIARY SERVICES PROVIDED IN RESPECT TO MOTOR VEHICLES

		INPUT TAX CREDIT AVAILMENT ON SUBSIDIARY SERVICES PROVIDED IN RESPECT TO MOTOR VEHICLES

		This update seeks to discuss the admissibility of input tax credit pertaining to the purchase and other services in respect of motor vehicles and other conveyances.

		Section 17(5) of CGST Act 2017 outlines the list of blocked credits and this lists allows the availability of input tax credit on motor vehicles on conditional basis. The relevant part of Section 17(5) reads as has been enumerated below-

		(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, 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 section 17(5) makes it clear that the ITC on motor vehicles and other conveyances is allowed on conditional basis. It has been interpreted that the phrase "in respect of" is very restrictive in nature and it covers only the ITC involved in purchase of motor vehicle. All the other expenses like repairs-maintenance and insurance will be eligible for credit availment. 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 deemed to be allowed.

		It is worthwhile to note that even the twitter handle provided by the government confirmed that ITC pertaining to the repair and maintenance of motor vehicles and conveyances used for business purpose shall be allowed.

		In the recent proposed amendments in CGST Act wherein the bill is passed by the Lok Sabha i.e. CGST (Amendment) Bill, 2018, Section 17(5)(a) has been substituted as follows-

		Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

		“(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:—

		(A) Further supply of such motor vehicles; or

		(B) Transportation of passengers; or

		(C) Imparting training on driving such motor vehicles;

		(aa) vessels and aircraft except when they are used––

		(i) For making the following taxable supplies, namely:—

		(A) Further supply of such vessels or aircraft; or

		(B) Transportation of passengers; or

		(C) Imparting training on navigating such vessels; or

		(D) Imparting training on flying such aircraft;

		(ii) For transportation of goods;

		(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa).

		Provided that the input tax credit in respect of such services shall be available—

		(i) Where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

		(ii) Where received by a taxable person engaged—

		(I) in the manufacture of such motor vehicles, vessels or aircraft; or

		(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

		On the basis of the analysis of the aforesaid newly proposed amendment, clause (ab) allows the credit on motor vehicle mentioned in clause (a) and (aa). The clause (a) mentions vehicle having approved seating capacity not more than 13 passengers. Hence, the buses and vans will be covered and it can be inferred that credit pertaining to repair, maintenance and other services explicitly provided in case of motor vehicles used in business purpose and having seating capacity of more than 13 persons (including the driver)like buses, Omnis, vans etc. will be allowed without any restrictions.

		However, no ITC shall be allowed in case of repairs, maintenance and insurance of motor vehicles having seating capacity less than thirteen persons. But proviso to this clause (ab) allows the credit on repair, maintenance of such motor vehicle which are used for the purpose.

		specified in clause (a) and (aa). The credit on vehicles of seating capacity less than 13 persons is allowed to traders of such vehicle, rent-a-cab operators and training and driving institutes. Hence, the credit of repair, servicing, insurance etc. will be allowed to them. But it will create unnecessary dispute that authorized car dealers having service centre will get the credit on outsourced repairing work but small workshops will not get the same.

		Moreover, the credit of repair and maintenance of cars will be allowed to manufacturers of cars and credit of insurance will be allowed to insurance company.

		Further, it is indispensible to note that this amendment bill is subject to changes as it has not been notified yet. The money bill is to be tabled in Rajya Sabha. Also, amended SGST bill is to be passed by all state assemblies before it become a statue applicable all over India.

		This is solely for educational purposes. You can reach us at www.capradeepjain.com, at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on twitter at https://www.twitter.com/@capradeepjain21. We hope the above is useful to you.

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INPUT TAX CREDIT AVAILMENT ON SUBSIDIARY SERVICES PROVIDED IN RESPECT TO MOTOR VEHICLES

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