ITC on Motor Vehicles having seating capacity less than 13

Wherever there is a block of input tax credit, there is a flock of confusions and problems. For every problem there must be a solution. A solution can be found only if we analyse the situation, therefore, in order to find a solution for the ITC blocking problem, we shall analyse the sections of the CGST Act that block the free flow of input tax credit.

Here, we will take up the issue related to motor vehicles. According to section 17(5)(a), ITC on purchase of motor vehicles having seating capacity of less than 13 persons including the driver’s seat, is not available.  But the section allows ITC on such motor vehicles if they are used for the following supplies:

> further supply of such motor vehicles

> transportation of passengers

> imparting training on driving such motor vehicles

Example 1: ABC Co. is a car showroom selling cars having seating capacity of less than 13, ITC is available to ABC Co. as they further supply of such cars.

Example 2: DEF Co. is selling vans having seating capacity of less than 13, ITC is available as they further supply of such vans.

Example 3: GHI Co. is a manufacturing company that purchases cars for its employees, which are having seating capacity of less than 13, ITC is not available as they are not further supplying such cars rather their main business activity is manufacturing.  Further they are not providing the services of transportation of their employees.

Example 4: JKL Co. is a manufacturing company that purchases buses having seating capacity of more than 13, for transportation of its employees, ITC is available as the section restricts ITC on those vehicles only which are having seating capacity of less than 13.  Also the transportation of its own employees from home to company and vice versa, is necessary for its business.  So it is eligible to take ITC.

Difference between renting/leasing of motor vehicles and transportation of passengers

Please refer to the Advance Ruling by AAR Tamil Nadu to New Pandian Travels Private Limited.

According to the ruling, there is a difference between the services of renting motor vehicles for a fixed amount and providing the services of staff/passenger transportation.  Section 17(5)(a)(B) allows ITC on purchase of motor vehicles only for providing the services of transportation of passengers but not renting or leasing of motor vehicles. 

Therefore the suppliers cannot avail ITC on purchase of motor vehicles when they rent/lease out the same, but they can take ITC if they use such motor vehicles for providing the services of transportation of passengers.

ITC on General Insurance, Service, Repairs & Maintenance on Motor Vehicles having seating capacity less than 13

The proviso to section 17(5)(ab) allows ITC on general insurance, services, repairs & maintenance of such motor vehicles having seating capacity of less than 13 as long as they are used for the taxable services mentioned under section 17(5)(a).

ITC on leasing, renting or hiring of motor vehicles having seating capacity of less than 13

When the motor vehicles having seating capacity of less than 13 are leased, rented or hired and used for the purpose as specified in the section 17(5)(a), there is no restriction on availing ITC on the receipt of such services by the recipient.

Example 5: MNO Co. is hiring cars for the transportation of its employees from and to, home and office, they can take ITC, even the seating capacity of such vehicles is less than 13 as such vehicles are used for the transportation of passengers, i.e. the employees.

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The author welcomes any objections/additional inputs/discussions.

Disclaimer: This article is written by the author as he understands the Act/Rules as so.   This article is only for the purpose of understanding the provisions of the Act, The author bears no responsibility on decisions taken by the readers whatsoever.  E&OE.