Dealers eligible for ITC on Demo Cars: AAR [Read Order]

The Maharashtra Authority for Advance Ruling (AAR) held that Input tax credit (ITC) charged on inward supply of demo cars which is used for Demonstration purpose in the course of business of supply of Motor Vehicle as an input tax credit (ITC) on capital goods and the same can be utilized for payment of output tax payable under this Act.

The Applicant is an authorized dealer for Maruti Suzuki India Limited for the supply of motor vehicles and spares and for servicing as also for some other commercial vehicle manufacturers. The Applicant has made purchases of motor vehicles against tax invoice which are reflecting in the books of accounts of the Applicant as capital goods. The vehicles are used as demo cars for providing trial run to customers to understand the features of the vehicle. This is an essential part of marketing and sales promotion to facilitate the supply of cars.

As per the dealership norms with Maruti Suzuki India Limited, the applicant is required to maintain at least one Demo vehicle of each model per location. The Applicant purchases these Demo vehicles against a tax invoice. The said Demo vehicles are capital goods accounted under Fixed Assets of the Company excluding the GST component. The applicant has not claimed depreciation on the tax component of the said demo cars nor claimed as business expenditure.

Every model of demo cars is used for demonstration for a limited period. They are replaced every two years or 40,000 Kms whichever is earlier. Secondly, the vehicle keeps on changing due to competition in the market and changing demands. The customers always demand for the brand new model of cars for a test drive. Hence, it mandatory for the Applicant to buy a new Demo vehicle on the launch of the new model. The Demo vehicles are sold after paying the applicable taxes on sale value at that point in time.

  Thereafter, the said vehicles are sold after paying the applicable taxes on sale value at that point in time. Since the applicant will be making further supplies of the Demo vehicles, and there is no time limit prescribed in the GST Act for making such further supplies.

The bench constituting of Vineetha Sekar and A.A Chahure ruled on an application filed by chowgule Industries private limited.

The ITC availed by them on capital goods can be utilized for payment of output tax payable under this Act. The manner of utilization of ITC is provided as per provisions of Section 49 of the COST Act. Section 18 of the COST Act deals with the availability of credit in special circumstances. As per Section 18(6) of the COST Act, when there is a supply of capital goods on which ITC has been taken, as in the subject case then the applicant shall pay an amount equal to the ITC taken on the said Demo Vehicles reduced by such percentage points as may be prescribed or the tax on the transaction value of such Demo Vehicles, whichever is higher.

The applicant is entitled to avail Input tax credit (ITC) charged on inward supply of Motor Vehicle which is used for Demonstration purpose in the course of business of supply of Motor Vehicle as an input tax credit (ITC) on capital goods and the same can be utilized for payment of output tax payable under this Act.