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11 January, 2018

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Eligibility of Input Tax Credit GST On Motor Vehicles Purchased by Business Concern

Eligibility of Input Tax Credit on Motor Vehicles Purchased by Business Concern under GST

Off late we have got a lot of queries from readers as to what is eligibility criterion of Input tax credit on Purchasing Commercial vehicles for business concern. Normally there are different cases in different companies.

Some buy for their employees travel, some for transportation at site, some for delivery to customers, some are goods transport agencies itself  some for other routine course business work. Since buying a vehicle will involve significant amount of GST in value, knowing the Input tax credit provisions in this case becomes essential. So let’s discuss the Provisions.

Image result for motor vehicle gst

As per Section 17(5) of CGST Act, 2017 which explicitly denies input tax credit in certain cases covers this scenario at first. The Bare Provision is as follows:-

17 (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect[i] (The Word “In respect” should Deny credit of Even Spares / Repair of such Vehicle as well) of the following, namely:-

(a) motor vehicles and other conveyances except when they are used––
           (i) for making the following taxable supplies, namely:-
                (A) further supply of such vehicles or conveyances ; or
               (B) transportation of passengers; or
               (C) imparting training on driving, flying, navigating such vehicles or     conveyances;

        (ii) for transportation of goods;

From the Above clause, few Straight Interpretations can be made:-

a)    The Motor Vehicle Credit will be allowed only if sold/supplied on GST, Used for Transportation of Passenger where such fees of Transportation is Liable to GST or for Training of Driving, Flying etc again which is Liable to GST.

b)    The Motor Vehicle Credit will be available if it is Used for Transportation of goods even if such services of transportation of Goods is not liable to GST (No Taxable Supplies clause here).

So, how does it now apply to various business concern is the business end of this Article.

Business Transaction
Availability of Input Tax Credit
Company Buys Vehicle for Employees Official Use
No Credit Available.
Company Using Vehicles for Directors / Employees Personal Use
No Credit Available
GTA Buys a Vehicle For Transportation of Goods
No Credit if under Reverse Charge @ 5% since explicitly denied in the Notification itself.

Under Forward Charge such credit will be Allowed.
A taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motorvehicle
No. ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicles. 
Car Taken on Lease by Company and used for Employees Purpose
No Credit Still Available.

Key Note:- Where the Credit is not available add the amount of Credit to Actual Cost of Asset u/s 40 of Income Tax Act, 1961 and Claim Depreciation u.s 32. If credit availed you cannot claim any benefit under Income Tax Act, 1961.

Key Note:- Once the Credit is Correctly available and availed by any assessee such credit can be applied and utilized against any liability on that GSTIN. There is no one to Correlation Required. Keep In Mind that CGST & SGST cannot be Cross used and Applicability order of Usage for IGST, CGST/SGST is duly defined.

Some Other FAQ’s
Question: In transport industry, old vehicles, old tyres, scrap material etc, on which no input tax credit (ITC) has been taken, are disposed of after completion of their useful life. As a truck owner disposing of these goods, am I required to pay GST considering that no ITC has been taken at the time of their initial purchases? Would levy of tax insuch cases not amount to double taxation, as tax has already been paid at the time of initial purchases?

Answer: Under section 7 of the CGST Act, 2017 supply includes all forms of supply of goods such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Sale or disposal of old vehicles, old tyres and scrap material for a consideration would therefore attract GST regardless of whether ITC has been availed or not.

Question: Will Airlines be entitled to input tax credits under the GST transitional rules if the liability to pay service tax arises, due to resolution of litigation or disputes, after implementation of GST?

Answer: Yes, Section 142 6 (a) of the CGST Act, 2017 provides that every proceeding of appeal, review or reference relating to a claim for CENVAT credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of the existing law, and any amount of credit found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of the existing law other than the provisions of section 11B (2) of the Central Excise Act, 1944.

Before Parting…
We Trust the Above would clear a lot many ambiguities. Comment your Feedback in Disqus Section Below and you shall hear back from us soon. Constructive Commenting Only please.

[i] Union of India vs. Vijay Chand Jain (AIR 1977 SC 1302)


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