If you are a person registered under GST, you are eligible to take input tax credit (ITC) in respect of goods and services procured for the purpose of being used in the business. The provisions for availing ITC are given under section 16 of the CGST Act, 2017. However, there are certain restrictions on ITC which are given u/s 17(5) of the Act. One of such restriction is in the case of motor vehicles. In this article, we will discuss the issue of availability of ITC in case of motor vehicles.
Before understanding the provisions of section 17(5) of CGST Act, we will first discuss the definition of ‘Motor Vehicle’. Motor Vehicle has been defined under section 2(76) of the CGST Act as: -
“Motor Vehicle shall have the same meaning as assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988”
According to section 2(28) of the Motor Vehicles Act, 1988, Motor Vehicle means any mechanically propelled vehicle adopted for use upon roads whether the power of propulsion is transmitted thereto from external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include: -
- a vehicle running upon fixed rails or
- vehicle of a special type adapted for use only in a factory or any other enclosed premises or
- a vehicle having less than four wheels fitted with engine capacity of not exceeding 25CC.”
Now, we move to section 17(5) of CGST Act, 2017 which provides the list of items which are ‘Blocked Credit’ for the purpose of ITC. One of such ‘Blocked Credit’ is in respect of motor vehicles which is the subject matter of our article.
Section 17(5) states as below: -
“Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following namely: -
- motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver), except when they are used for making the taxable supplies, namely: -
- Further supply of such motor vehicles or
- Transportation of passengers or
- Imparting training on driving such motor vehicles
(ab) services of general insurance, servicing, repair and maintenance insofar as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa)
Provided that the input tax credit in respect of such services shall be available-
- Where the motor vehicles, vessels or aircraft referred to in clause (a) or (aa) are used for the purposes specified therein;
- Where received by a taxable person engaged-
- In the manufacture of such motor vehicles, vessels or aircraft; or
- In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
We can draw the following inference from the reading of the section 17(5) as below: -
- Input Tax Credit (ITC) is admissible for motor vehicles which are used or intended to be used for transportation of goods
- ITC shall be allowable for passenger transport vehicles which are having approved seating capacity of more than 13 persons (including driver). There is no such restriction on ITC in this respect.
- In case of passenger transport vehicles with an approved seating capacity not more than 13 persons, ITC shall be blocked subject to the exceptions.
In case of passenger transport vehicles having an approved seating capacity of not more than 13 persons (including driver), the ITC shall be available only in the following cases: -
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Further supply of such motor vehicles: -
X Automobiles Limited is an authorized dealer of Maruti Cars in Jaipur. It purchases cars from Maruti for further sale to retail and corporate customers. Suppose, it purchases a car from Maruti at Rs. 5,00,000 (GST 1,40,000) and sells it to Mr. Y for Rs. 6,00,000 (GST 1,68,000). X Automobiles Limited can claim ITC of Rs. 1,40,000 as it has acquired cars for the business of further supply and shall therefore pay net tax of Rs. 28,000 [1,68,000 – 1,40,000].
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Transportation of passengers: -
If you are engaged in the business of transportation of passengers, then you can claim ITC for GST paid on purchase of motor vehicles like car. For example, Hariom Tour and Travels is in the business of providing taxi services to tourists through cars. It purchased a car for providing such services. In this case, Hariom Tour and Travels is eligible to take ITC for GST paid on purchase of car.
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Imparting training on driving on such vehicles: -
Vehicle driving training schools are covered by this exception. Thus, if a vehicle driving training school purchases a motor vehicle with an intention to impart training on driving on such vehicles, ITC on purchase of such motor vehicle shall be admissible.
Similarly, restrictions are placed on ITC of general insurance services, servicing, repairs & maintenance services in relation to passenger motor vehicles having an approved seating capacity not more than 13 persons (including driver). According to GST law, ITC of the general insurance services, servicing, repairs & maintenance etc. shall be admissible in the cases (a) to (c) above.
Further, ITC of the above input services shall also be available to a taxable person who is engaged in the manufacture of such motor vehicles.
FREQUENTLY ASKED QUESTIONS
Is ITC admissible on purchase of tippers and dumpers?
ITC is admissible on purchase of tippers and dumpers as they are not ‘motor vehicle’- (based on FAZ by Directorate General of Taxpayer Services on 31-07-2017)
Is ITC admissible on excavators or road rollers?
No, ITC is not admissible on excavators and road rollers, as they are ‘Motor Vehicles’ as per Motor Vehicle Act. Please also refer Boss Abraham Vs. State of Kerala below in this article. Similar view is given by Madras HC in case of RDS Projects v. CTO (2007).
Is ITC available to a taxable person who has acquired a car for being used in his business of manufacturing or trading of any goods other than motor vehicle?
No ITC shall be available in this case as it is covered by the blocked credit under clause (a) of section 17(5) of CGST Act, 2017.
I am a Chartered accountant engaged in providing consultancy services to my client at client’s location. For this purpose, I purchase a car for commutation from my office to client’s premises. Can I take ITC for GST paid on purchase of car?
No ITC shall be available as it is covered by the blocked credit under clause (a) of section 17(5) of CGST Act, 2017.
Is ITC available to an employer for vehicles acquired for the purpose of transportation of employees to factory?
The exemption for ITC under section 17(5) is applicable only in respect of transportation of passengers. The same exemption can not be construed in respect of employees. Therefore, if an employer employs a vehicle having seating capacity more than 13 employees, then he will be eligible for unrestricted ITC in respect of such vehicle. However, if he employs a vehicle having seating capacity of not more than 13 employees(including driver), ITC shall be blocked in respect of such motor vehicle. Similar view is given by Haryana AAR in the matter of YKK India (P) Limited [2019] 102 taxmann.com 277
I am a manufacturer of medicines and pharma products. I purchase a truck for transportation of medicines and pharma products from my factory premises to dealer’s premises. Is ITC available for purchase of truck and other services related thereto?
Yes, ITC shall be available for motor vehicle intended to be used for transport of goods.
Whether GST paid on cars provided to different customers on lease rent will be available as ITC in terms of section 17(5) of CGST Act, 2017?
It has been held by MP AAR in the matter of Narsingh Transport [2019] 104 Taxmann.com that the applicant is entitled to avail ITC on cars which are further supplied to customers on lease rent, subject to condition applicable in such supply of services as per notification no. 11/2017- CT (Rate) Dated 28-06-2017 as amended from time to time. At the termination of lease agreement/ contract, if the vehicle is not further leased to same or other customer, the applicant shall be liable to reverse the ITC so availed as per law. Such vehicles should also abide by the regulations of the Motor Vehicle Act; accordingly, to be registered for commercial use with the Transport Authority and not put to own use by the applicant.
However, in a contrary advance ruling of West Bengal AAR in matter of Mohana Ghosh [2019] 106 taxmann.com 108 (AAR-WB), ITC is restricted in such case. In our opinion, ITC in respect of motor vehicles used in the business of supplying such motor vehicles on rent or lease should be available as it is nothing but further supply of vehicles and should be construed accordingly.
Whether ITC is available in respect of Demo cars to car dealers?
Held in the case of Chowgule Industries Pvt. Ltd. (Mah. AAR) that the car dealer shall be entitled to ITC charged on inward supply of motor vehicle which is used for demonstration purpose in the course of business of supply of motor vehicle as an ITC on capital goods and the same can be utilized for payment of output tax payable under this Act. Similar judgement was also rendered by Kerala AAR in case of A.M. Motors (2018) 18 GSTL 93.
But, when such demo cars are sold, section 18(6) of CGST Act will come into play and the car dealer shall pay an amount equal to the ITC taken on the said demo vehicles as reduced in the manner provided under Rule 44 of the CGST Rules, 2017 (ITC involved in the remaining useful life in months shall be computed on pro-rate basis taking useful life as 5 years) or the tax on the transaction value of such demo vehicles, whichever is higher.
Whether ITC is available for vehicles used as cash carry van?
In CMS Info Systems Limited [2018] 96 Taxmann.com 292 (AAAR-Mah.), held that where the applicant is engaged in transportation of cash from currency chest to bank branches and for this purpose, it purchased a cash carry van after payment of GST, ITC of GST paid on purchase of the said van is not available to the applicant.
Whether an employer can avail ITC on hiring of commercially licensed vehicles for transportation of its employees?
No ITC shall be available in respect of procuring taxis on rent for transportation of employees, which is not obligatory under any law, for the time being in force. [Prasar Bharti Broadcasting Corporation of India- Himanchal Pradesh AAR]
Also Read the related blog:- Input Tax Credit on demo cars under GST
