2018 (10) TMI 514 – AUTHORITY FOR ADVANCE RULINGS, KERALA – 2018 (18) G. S. T. L. 93 (A. A. R. – GST) – Input Tax Credit – Demo cars – Whether input tax credit on the motor car purchased for demonstration purpose of the customer can be availed as credit on capital goods and set off against output tax payable under GST in the case of a motor car dealer?
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Held that:- The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. As the impugned purchase of demo car is in furtherance of business, the applicant is eligible for input tax credit. Furthermore, this activity does not come under the negative clause, as after a limited period of use as demo car, the vehicles are sold at the written down book value.
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The availability of input tax credit shall be subject to the provisions of Section 18(6) of the GST Act. In the case of supply of capital goods on which input tax credit has been taken, the registered person shall pay an amount
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onstration purpose for the prospective customer and after a specific period of time, they are sold off for the book value, paying the applicable taxes at that point of time. The petitioner sought for advance ruling on the following: Whether input tax credit on the motor car purchased for demonstration purpose of the customer can be availed as credit on capital goods and set off against output tax payable under GST in the case of a motor car dealer. The authorized representative of the firm was heard. He has stated that the demo car is purchased against tax invoice and reflected in the books as capital assets. As per their business norms, every sales outlet is bound to maintain at least three demo cars. The duration of test drive vehicles is usually two years or 40,000 kms. whichever is earlier. As per Section 16(1) of the GST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be use
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iod. Later on, when demo cars are sold at the written down book value, applicable GST is satisfied at that point of time. GST Act does not prescribe the time within which further supply is to be effected. So much so, the embargo under Section 17(5) will not apply and the applicant is entitled for input tax credit as against demo cars. The issue was examined in detail. The suppliers of vehicles supplied demo cars against tax invoices. The demo car is an indispensable tool for promotion of sales by providing trial run to customers and to understand the features of the vehicle. The applicant capitalizes the purchase in the books of accounts. The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. As the impugned purchase of demo car is in furtherance of business, the applicant is eligible for input tax credit. Furthermore, this activity does not come under the negative clause, as after a limited period of use as demo car, the vehicles a
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