The Bombay High Court has resolved the case of Sai Service Private Limited against the Union of India regarding the availability of Input Tax Credit on demo vehicles under the GST Act. The matter became moot following the issuance of GST circular number 231/25/2024 by the CBIC on September 10, 2024.
The circular validated that businesses like automobile dealers are permitted to claim GST ITC on demo vehicles, effectively overriding the disputed order that led to litigation earlier.
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Sai Service Private Limited petitioned the court after being denied ITC on demo vehicles, which are utilized by automobile dealerships for customer demonstrations before sale. They contended that these vehicles meet the criteria for capital goods under the GST regime and are thus eligible for ITC.
The applicant emphasized the integral role of demo vehicles in their business operations, demanding that their tax treatment align with standard capital goods provisions.
CBIC in the statutory proceedings released a policy clarification validating that the ITC on demo vehicles is also allowable. Provided that the circulars of the government have binding authority on tax officers and serve as an interpretation of tax statutes, the Bombay High Court considers the circulars to have precedence over the impugned order. The court, with no remaining controversy, concluded that the petition does not need additional adjudication.
The same ruling aligns with past judicial precedents where courts kept that official clarifications from tax authorities must be regarded as final in tax disputes. For example, in cases such as M/s ARA Trading vs. State of Karnataka and Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST, courts have ruled that ITC benefits must not be denied on procedural grounds when business usage is apparent.
The stance of the Bombay HC supports the norm that the taxpayers must not be penalized for the interpretational ambiguities when forthcoming clarification settles the problem.
Automobile dealers with the petition disposed of can now claim the ITC on demo vehicles in line with the CBIC GST circular, furnishing much-needed clarity on the problem. The matter shows the significance of tax authorities issuing timely clarifications to avert litigation and ensure consistency in tax administration.
| Case Title | M/s. R. P. Buildcon Private Limited & Anr. Vs. The Superintendent, CGST & CX |
| Citation | WRIT PETITION NO.622 OF 2024 |
| Date | 24.10.2024 |
| Counsel For Appellant | Mr Bharat Raichandani (through V.C.) with Mr Vibhav Amonkar, Advocates |
| Counsel For Respondent | Mr Devidas Pangam, Advocate General with Ms Maria Correia, Additional Government Advocate |
| Bombay High Court | Read Order |
