GST ITC not available on demo cars being not purchased with intention of further supply: AAAR

Case Details: Platinum Motocorp LLP, In re - [2022] 138 taxmann.com 344 (AAAR-Haryana)

Judiciary and Counsel Details

• • Shekhar Vidyarthi & Suresh Kishnani, Member
  • Deepak Juneja, Adv. for the Applicant.

Facts of the Case

The Appellant is an authorised dealer of Maruti Suzuki India Limited. The appellant purchases ‘Demo Cars’ for demonstration purposes. Each demo car is used for demonstration for a maximum period of 2 years from the date of purchase after which it can be sold as a second-hand car. The appellant reached out to the Haryana AAAR for the following issues:

(a) Whether Input Tax Credit (ITC) can be availed on the demo cars

(b) Whether ITC can be availed on ancillary input services such as insurance and repair and maintenance availed in respect of demo cars

AAAR Held

The Haryana AAAR observed that Section 17(5)(a) of the Central Goods and Services Tax Act, 2017 provides that ITC cannot be allowed on motor vehicles with a seating capacity of up to 13 persons when used for other than the intended purposes. The intended purposes are limited to the following:

(a) Further supply of such motor vehicles; or

(b) Transportation of passengers; or

(c) Imparting training on driving such motor vehicles

It was observed that the demo vehicles are used for the purpose of demonstration to prospective customers for 2 years or so and therefore, afterwards, it loses the character of the new vehicle. These vehicles are then sold akin to second-hand goods. The demo vehicles are not meant for ‘further supply of such motor vehicles’, but are first put to the mentioned uses. The AAAR provided that if the contentions of the applicant are allowed then in that case all the motor vehicles, irrespective of the nature of the supply will be eligible for ITC across the industries.

The AAAR held that the appellant has never received the demo cars with the intent to simply ‘further supply/sell’ as such and therefore, ITC on such vehicles cannot be allowed. Further, ITC on repair/insurance/maintenance used in respect of said vehicles cannot be allowed.

List of Cases Reviewed

• • Platinum Motocorp LLP, In re [2021] 124 taxmann.com 460 (AAR – Har.) (para 25) affirmed.