In re Goexotic Plus91 Motors Private Limited (GST AAR Kerala)
The Authority of Advance Ruling, Kerala examined the admissibility of Input Tax Credit (ITC) for a registered company engaged in buying and selling second-hand motor vehicles, primarily used luxury cars. The applicant procures vehicles from registered and unregistered persons and undertakes minor repairs, refurbishment, and replacement of spare parts to enhance resale value without changing the nature of the vehicles. For outward supplies, the applicant proposed to adopt the special valuation mechanism under Rule 32(5) of the CGST Rules, 2017, read with Notification No. 8/2018-Central Tax (Rate), under which GST is payable only on the margin between sale price and purchase price, subject to the condition that no ITC is availed on the purchase of the used vehicles.
The core issues before the Authority were whether ITC is admissible on direct expenditures such as repairs, spare parts, and refurbishment costs, and on other common business expenses and capital goods, and whether supplies made with nil margin under the margin scheme should be treated as exempt supplies requiring ITC reversal.
The Authority observed that Notification No. 8/2018-Central Tax (Rate) restricts the availment of ITC only in respect of “such goods,” namely the old or used motor vehicles themselves. On a plain reading, the notification does not impose any restriction on ITC for other inward supplies of goods or services used in the course or furtherance of business. Rule 32(5) was held to be a valuation provision that applies specifically to second-hand goods and permits taxation only on the value addition, provided ITC is not availed on the purchase of those goods. Minor processing activities like repairs and refurbishment do not affect the applicability of the margin scheme.
