In re Khatwani Sales And services LLP (GST AAAR Madhya Pradesh)
The primary intention of appellant to purchase demo vehicles is to use it for demonstration and trial for the customers. He has, as per his statement, capitalised these purchases of demo vehicles in his books of account and these demo vehicles are used and replaced earlier of folic wing (a) 40,000 kms or above (b) continuation of model. It means that these vehicles have very specific object to serve and after that, these are subsequently supplied by way of sale as old, used and second hand vehicle. It is worthy to mention here that there is no question of cascading effect since the issue is already clear in light of notification no. 8/2018 central tax (rate) dated 25/01/2018, Explanation no. (i) of this notification stated that, “in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act, 1961 (43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin o ?such supply is negative, it shall be ignored”.
After close examination of the ruling of Madhya Pradesh Advance Ruling Authority and representation of appellant, we find that the ruling given by the Madhya Pradesh Advance Ruling Authority is reasonable and appropriate. Section 17(5) (a) prescribes the condition in which input tax credit shall not be available on motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies:-
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
We drive the conclusion that the demo vehicles used for demonstration and for offering trial facility to customers, are not covered in above exceptions.
Also Read AAR: ITC not available on Demo vehicles purchased for furtherance of business
FULL TEXT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING, MADHYA PRADESH
1. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act, 2017 and the Madhya Pradesh Goods and Services Tax Act, 2017 [hereinafter also referred to as “the CGST Act and MPG ST Act”] by M/S Khatwani. Sales and Services LLP (hereinafter also referred to as the “appellant”) against the order of Authority for Advance Ruling bearing No. 13/2020 dated 23.07.2020.
2. At the outset, we would like to make it clear that the provisions of both the CGST Act and the MPGST Act are mirror image of each other except for certain specific provisions. Therefore, unless a specific mention is made to such dissimilar provisions, a reference to the CGST Act would mean a reference to the similar provisions under the MPGST Act and vice-versa. At places we may refer it as GST Act.
BRIEF FACTS OF THE CASE
The appellant- M/s Khatwani Sales and Services LLP is registered with GSTIN No. 23AAUFK1834E1ZE and is an authorised dealer for Kia Motors Corporation for supply of motor vehicles, spares and servicing in Jabalpur, Madhya Pradesh.
QUESTION RAISED BEFORE AUTHORITY FOR ADVANCE RULING (AAR)
Question raised before AAR, are as under: –
Whether the applicant is entitled to avail input tax credit charged on inward supply of Motor Vehicles which are used for demonstration purpose in the course of business of supply of motor vehicles as input tax credit on capital goods and whether the same can be utilised for the payment of output tax payable under this Act?
RULING PRONOUNCED BY AUTHOURITY FOR ADVANC E RULING (AAR)
It is Ruled that the applicant is not eligible for input tax credit on Demo Vehicles purchased for the furtherance of business, in view of barring provisions of clause (a) of subsection (5) of section 17 of GST Act, 2017 as they are not covered by any of the exception given in clause A, B or C of section 17(5) (a).
QUESTIONS RAISED BEFORE THE APPELLATE AUTHOURITY FOR ADVANCE RULING (AAAR)
The following question, which is the very same as posed before AAR. has been posed before the Appellate Authority: –
Whether input tax credit on the motor vehicle purchased for demo purpose can be availed.
STATEMENTS OF FACT
Detailed Discussion about Section 17
Section 17:- Apportionment of Credit & blocked Credits
This section specifies that where goods and services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to SO much if the input tax as is attributable to the purposes of his business.
Contention behind the language of section is that the registered person should not be allowed to take the input tax credit of the goods and services which are not related to business
Section 17 (5) states that notwithstanding anything contained in subsection (1) of section 16 & subsection (1) of section 18 , input tax credit shall not be available in respect of the following namely:-
a) Motor Vehicles and other conveyance’s except when they are used:-
i) For Making the following taxable supplies, namely: ¦
A) Further supply of such vehicles or conveyance or
B) Transportation of Passengers or
C) Imparting training on driving, flying, navigating such vehicles or conveyances
ii) For Transportation of Goods
b) i) Supply of food and beverages, outdoor catering, b sauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance except where when inward supply of goods or services or both of a particular category 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;
ii) membership of a club, health and fitness centre;
iii) Travel benefits extended to employees on vacation such as leave or home travel concession;
c) Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
d) Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
e) Goods or services or both on which tax has been paid under section 10 i.e. Composition Scheme
f) Goods or services or both received by a non-resident taxable person except on goods imported by him;
g) Goods or services or both used for personal consumption;
h) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;
i) Any tax paid in accordance with the provisions of sections 74 (Tax not / short paid due to fraud etc), 129 (Detention, seizure and release of goods and conveyance in transit) and 130 (confiscation of goods or conveyance and levy of penalty).
Detailed Analysis of Section 17 (5) Block Credit:-
Interpretation of Statutes
The natural presumption of the section is that to block the input tax credit of the goods and services or both of the items which are commonly used as personal goods and services like wise motor vehicles, food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance, membership of a club, health and fitness centre, Travel benefits extended lo employees on vacation such as leave, Works contract service. Construction Services, Personal Consumptions of goods and services, Goofs lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Coverage of the above items clearly indicates that the block in credit is for the items which commonly used for the personal and business both.
Here Motor Vehicle used as Demo Vehicle is entirely used for business purpose and no question of the same for being used as personal vehicle shall arise.
Here Applicant contended that they are covered in all the exception Provision of section 17 (5) a clauses (i) (A) (B) (C) in the following manner
Section 17(5) (a) (i):- EXCEPTIONS WHEN INPUT CREDIT ALLOWED
