The Haryana Appellate Authority of Advance Ruling (AAAR) bench comprised of Amit Kumar Aggarwal and Anil Kumar Jain held that the (ITC) is not permissible on demo cars/vehicles.
Towards running a training centre for the training of Engineers and Marketing professionals BMW/Appellant has been enrolled in GST at Gurugram as a State-administered taxpayer. They get BMW branded vehicles made in Chennai plant as interstate stock transfer upon which the IGST and compensation cess would get furnished and all these vehicles used for a very limited duration of about 12 months.
BMW seeks the advance ruling on the problem of whether the unit of BMW is authorized for claiming the ITC of IGST and compensation cess furnished on the receipt of cars on stock transfer basis for the use in context to the business activities and onwards provides to the dealers post using for a specific time duration.
AAR held that in the motor vehicle industry, the demonstration vehicles are entitled as an indispensable tool for the promotion of sales by furnishing the trial runs to customers. These demo cars are practised towards the purpose of demonstration for the customers, and post to a prescribed duration they went sold off as per their book value along with furnishing the subjected taxes.
AAR sees that the mentioned provisions for the admissibility of the ITC on motor vehicles towards the transportation of the persons up to a seating capacity exceeding 13 people come under Section 17(5) of the CGST Act 2017.
The petitioner questioned the order of AAR and mentioned that the ruling was uncertain or mysterious. BMW was authorized to avail ITC as the vehicle was used for the mentioned taxable supply beneath section 17(5)(a)(i)(A) of the CGST Act.
AAAR sees that when the argument of the party is permitted then in that situation all the motor vehicles, no matter the kind of supply it is the same would be authorized for the ITC for every industry. The same would no more be a restrictive clause for the car dealers. However, it would be an open clause for all the trade and industries to claim the ITC on all the bought vehicles through them. The same would never be the purpose of the Parliament.
AAAR sees that if the argument of the party is permissible then in that situation all the motor vehicles, no matter the kind of supply would be qualified for the GST input tax credit for every industry. It will no longer be a restrictive clause for car dealers but will be an open clause for all the trade and industry to avail of the ITC on all the vehicles purchased by them. This has never been the intent of Parliament.
AAAR held that in the first demonstration run, demo cars lose the character of the new motor vehicle, and the demo vehicles are sold akin to second-hand goods, which are different from new vehicles and accordingly treated differently under GST law, so the demo car is not an input.
“The BMW vehicles received by the Appellant under stock transfer have never been received with the intent to simply ‘further supply of such motor vehicles/’sell as such’. The Input Tax Credit on these vehicles, therefore, cannot be allowed, the AAAR specified.”
