GST Impact & ITC Eligibility on Purchase/Sale of Motor Vehicle/Car/Bus With Charts & Table

Are you also Confused about all this???

Then here all your Questions about GST applicability and ITC availability of GST paid on Purchase and Sale of motor vehicle / car / bus will be answered.

In this article, we will cover following things,

– ITC on purchase of Motor Vehicle/Car/Bus.

 

– ITC availability if such motor vehicle/car/bus is not purchased but taken on Leasing / Renting / Hire basis as a Input Service.

– GST Implication on Sale of Used Car either by a Original Buyer Sale of Motor Vehicle after using it for some period of time or by a Second Hand Car Dealer.

– Surprise for the reader.

ITC ON PURCHASE OF MOTOR VEHICLE / CAR / BUS

What if I tell you that you can claim ITC of GST paid on Purchase of motor Vehicle / Car / Bus?

Here is How!

According to the research estimates, India has 22 Cars per 1000 Individuals. Rate of GST on Motor Vehicle is 28% and Implementation of GST ensures seamless flow of ITC of GST paid on purchase of goods.

Obviously, if a person is spending huge amount of expenditure, he would want to take a credit of GST paid on buying a motor vehicle.

For Instance, Mr. Rahul Roy, a business men buys a car of Rs. 13 Lacs (Inclusive of GST), he pays GST of Rs. 2,84,375.

Question arises `

Whether he will he be able to take ITC of GST paid on car? If Yes, then under what circumstances and what are the provisions that has to be complied to take GST credit?                      

ITC of GST on motor vehicle is governed by Section 17(5) of GST Act which is as follows:

Blocked Credits i.e. Goods or Services or Both on which Input Tax Credit (ITC) shall Not be Available under GST Act. [Section 17(5)] (After changes in eligibility of ITC w.e.f. 01-02-2019)

Input credit shall not be available under Section 17(5) in respect of the following:

a) Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when used for

i. further supply of such motor vehicles; or

ii. transportation of passengers; or

iii. imparting training on driving such motor vehicles;

 Analysis

1. Motor Vehicle purchased for transportation of goods is eligible for availing ITC.

2. ITC relating to any vehicle with approved seating capacity more than 13 persons (including driver) is eligible.

3. Motor Vehicle having approved seating capacity less than 13 persons can also be eligible for ITC provided its usage falls under above three categories.

4. It should also be noted that reading the full context of Section 17(5), It has also been clarified that, where ITC is eligible on motor vehicles, vessels and aircrafts, the ITC on repairs & maintenance and related insurance also would be eligible.

Possible categorization of above mentioned section are as follows:

For Example: Lets see, in our case Mr. Rahul Roy, a Businessmen, whether he will be eligible to take ITC on GST paid for purchasing Car/Bus/Truck used for the following purpose:

ITC AVAILABILITY IF SUCH MOTOR VEHICLE/CAR/BUS IS NOT PURCHASED BUT TAKEN ON LEASING / RENTING / HIRE BASIS AS A INPUT SERVICE.

If motor vehicle is taken on Rent/Lease/Hire for as a Inward supply of Goods/Service then that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of

– The Same Category of goods or services or both or

– As an Element of a taxable composite or mixed supply or

– The Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force.

For Example:

1^st Example: Mr. Rahul Roy has taken a car on rent for one day to be used for giving pickup and drop facility to members to attend business conference. Mr. Rahul Roy charges conference fees Rs. 5000 + GST per member and provides free pickup and drop facility.

Whether the ITC on car renting services is eligible?

– Yes, as it is an element of the composite supply, i.e. Attending the Business Conference.

2^nd Example: Mr. Rahul Roy taken car on rent for Rs. 10000 + GST and given on rent (sub let) the car to Mr. Arjun for Rs. 12000 + GST.

Whether the ITC on car renting services taken by Mr. Rahul Roy is eligible ?

– Yes, since Rahul is using input service for providing the same category of output services i.e Sub Letting out a car to Mr. Arjun.

3^rd Example: Company engaged in a business of manufacture of beauty soaps has availed a transportation services of buses and cars for the purpose of transportation of employees.

Whether input tax credit of GST charged by the contractor and paid by the company to the contractor for hiring of buses/cars for transportation of employees be available?

CASE 1: If Government HAS NOT MADE any obligation to employer to provide transportation service to employees, then in such a case, ITC shall NOT be available since it transportation service qualifies as “Rent-a-cab” service and company’s outward taxable supply is not of the same category of Inward supply i.e Renting a Cab Service.

CASE 2: If Government HAS MADE any obligation to employer to provide transportation service to employees, then in such a case, YES ITC shall be available since government has made it obligatory for the employer to provide such service.

IMPORTANT: Please note that Issue under 3^rd Example of Case 1 has been addressed by Haryana Authority of Advance Ruling in case of YKK India Private Limited. Please refer full judgment of Haryana Authority of Advance Ruling.

GST IMPLICATION ON SALE OF USED CAR EITHER BY A ORIGINAL BUYER SALE OF MOTOR VEHICLE AFTER USING IT FOR SOME PERIOD OF TIME  OR BY A SECOND HAND CAR DEALER RULE 32(5) OF CGST ACT 2017.

Margin Scheme

Margin scheme under GST helps avoid double taxation on the supply of goods which has been taxed already. Under Margin scheme of GST, the supplier or the seller of the goods can calculate on the difference between the value of the supplied by the seller and the purchase value of the goods received by the customer.

Normally, as per valuation rules, GST is charged on the actual transaction value of supply of the goods, however, in respect of the second hand goods, a person dealing in such goods, may be allowed to pay tax on the margin. If there is no margin, then, no GST would be payable on such transaction. This is the basis of the GST margin scheme.

Valuation of Supply under the Margin Scheme

As per Rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods (means second hand goods dealer) and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored. (means original buyer who has considered it as a capital asset and not taken ITC of the same)

Notification No. 10/2017-Central Tax (Rate) Dated 28.06.2017

Please refer the Notification No.10/2017-Central Tax pertaining to the above subject matter of valuation of supply (Refer para 5, point 32, page 4)

In Simple Terms:

EXAMPLE

Mr. Rahul Roy has a business, which deals in buying and selling of second hand cars, purchases a second hand car at Rs.4,00,000 from an unregistered person and sells the same after minor furbishing at Rs.4,50,000, exemption of GST shall for the purchased value of the vehicle. However, when Mr. Rahul Roy, a registered user sold the same vehicle to a customer at the price value of Rs.4,50,000, GST shall apply to the difference amount i.e, Rs.50,000. Hence, GST applies only to the margin amount.

In case if the seller adds other value to the total amount by way of repair, refurbishing, reconditioning or other services, the seller shall add the expenses to the cost of value of goods and should apply as part of the margin. If the unregistered user opts for the margin scheme for a transaction of second hand goods, then the person selling the car to the company would not issue any taxable invoice and the company purchasing the car cannot claim any input tax credit.

Please Note:

– If Motor Vehicle is a Business Asset and Business Entity who is Selling a Second Hand Car is registered under GST Act 

OR

SCENERIOS:

GST will not be applicable in such a scenario because for seller, it is neither a business asset nor he is registered.

GST will be applicable in such a scenario under a Margin Scheme since seller is a registered dealer and asset is a business asset.

SURPRISE FOR THE READERS:

In the process making the article, author has made research and found out answers of the practical difficulties faced by the registered business regarding ITC availability of GST paid on purchase of Motor Vehicle.

1. Motor Vehicle purchased by a registered person providing services of Tours & Travelers. Whether such person can claim ITC of GST paid on purchase of Motor Vehicle?

Ans: Case 1: If Motor Vehicle has a seating capacity of more than 13 person,       then Yes ITC is available. Since restriction of ITC under Section 17(5) is for the Motor Vehicle with seating capacity equal to or less than 13 persons (including driver)

Case 2: If Motor Vehicle has a seating capacity equal to or less than 13 persons (including driver), then in such a case we have to follow para 4.3 and para 4.4 of AAR Ruling in case of Rep. Mohana Ghosh (GST AAR West Bengal)

Para 4.3 says

“  Passenger transportation service is classified under SAC 9964. Transportation of passengers, with or without accompanied belongings, is taxable under Sl No. 8 of Notification No.11t2O17 – CT (Rate) dated 2810612017 (corresponding State Notification No. 1135 – FT dated 28t}6t2017), as amended from time to time (hereinafter collectively called the Rate Notification). As obvious from reference to the accompanied belongings, the recipient of the service is a passenger travelling from one place to another. He may have varying degrees of control over the carriage, providing him with a certain measure of independence in choosing the destination and travel time, depending upon the nature of the contract, explicit or implied. But the supply remains that of transportation of the recipient as a passenger, and the consideration is paid for the distance travelled.                                                                                                 “

Para 4.4 says

“  Renting of any motor vehicle, however, is classified under SAC 9966. lt is taxable under Sl No. 10(i) of the Rate Notification. The recipient of this service is not a passenger. He is enjoying the service of having provided a motor vehicle, with or without a driver, for use in whatever way he likes for the duration of the renting period. lt may remain parked for the entire duration of renting without actual transportation of any person. Even when any person – the recipient of the service or someone of his choice – is being transported, the consideration is paid not for the distance travelled, but for renting the cab.                                                                                         “

Simply means, If a owner of tours and travelers charges amount from the customers on the basis on Distance Travelled from One place to another and consideration is paid for the distance travelled, then it will be considered as a service of Transportation of passenger and hence ITC can be availed.

But if consideration is received on monthly basis, then it is a monthly rentals received by the supplier which is in turn make it a service of renting of cab and not a transportation of passenger service. Hence, in that case, ITC cannot be availed. 

Please refer AAR Order in case of Mohana Ghosh

Disclaimer :   The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.`