The matter of Landmark Cars East Private Limited (GST AAR West Bengal) is into the intricacies of GST norms for the demo cars. This blog examines the rulings of authority on input tax credits, tax rates, and classification for demo cars, offering insights into the implications for businesses.
Landmark Cars East Private Limited, an authorized agent of Mercedes Benz India, asks for transparency on distinct GST provisions for demo cars. The role of the petitioner comprises facilitating sales, along with the supply of Mercedes-Benz passenger vehicles and concerned services. Questions have arisen regarding tax treatment of demo car purchases, classification, and reimbursement for losses on demo car sales, specifically input tax credit (ITC).
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The applicant making the claim believes that demo cars are essential for boosting sales by allowing customers to take test drives and experience the product first-hand. They argue that they are entitled to claim Input Tax Credit (ITC) on purchases of demo cars under Section 16(1) of the GST Act, which permits ITC for goods used in the course or furtherance of business.
Additionally, they contend that the exceptions in Section 17(5)(a) do not apply to demo cars because they are intended for resale, and therefore qualify as a “further supply” under the definition in the Act.
The applicant has provided examples from other states’ advance ruling authorities to support their claim regarding ITC eligibility for demo cars. However, they have made a distinction between their case and rulings where demo cars were capitalized, as opposed to being treated as stock in trade.
The applicant is seeking clarification on the classification and tax treatment of loss reimbursement for demo cars. They believe that it should be considered a supply under GST and classified under Schedule II entry 5(e) as a service, subject to a GST Rate of 18%. The applicant has pointed out that they are contractually obligated to purchase and use demo cars for the purpose of promotional activities, which they believe justifies their position.
The recent AAR ruling has provided clarity on input tax credit (ITC) for demo cars and the tax consequences of selling them. The ruling confirms that ITC can be claimed for cars used for demonstration purposes, as long as they are sold within a specific time frame.
In regards to the classification and tax rate applicable to the sale of demo cars, it has been specified under a ruling that these vehicles will be categorized under Chapter 8702 or 8703. The outward supply will draw the identical rate of tax as the inward supply, subject to the provisions of section 14 of the Goods and Services Tax Act.
Important: Telangana AAR: No GST Credit Available on Test Drive Vehicles When Included as Replacement Vehicles
The ruling clarifies that amounts received from Mercedes Benz India as reimbursement for “Loss on Sale of Demo Car” are said to be the supply of services. This reimbursement is regarded as consideration obtained against the supply of services for tolerating an act and is GST taxable Rate at 18%. In summary, the ruling clarifies input tax credit eligibility, classification, and tax rates for demo cars. It also addresses the tax treatment of reimbursements for losses made on the sale of such cars.
| Applicant Name | LANDMARK CARS EAST PRIVATE LIMITED |
| GSTIN of the applicant | 19AACCL4207H1ZN |
| Date | 04.04.2024 |
| Applicant | Mr. NITESH JAIN, Authorised Representative |
| West Bengal GST AAR | Read Order |
