JHARKHAND AUTHORITY OF ADVANCE RULING

GOODS AND SERVICES TAX

DIVISIONAL OFFICE OF STATE TAX, CIVIL COURT COMPOUND,

NEAR JAIPAL SINGH STADIUM, RANCHI, 834001 , JHARKHAND

Note: Under Section 100 of the JGST Act 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of JGST Act 2017, within a period of 30 days from the date of service of this order.

1. The applicant M/s TITANIA PRODUCTS PRIVATE LIMITED, having GSTN No- (20AAECT4112F1Z2) is a Private Limited Company. The business firm engaged in the business of resale and service of Motor Vehicles of the brand name "BMW"

The applicant company has submitted that:-

I. The applicant is an authorized dealer of BMW range of vehicles and an authorized service station for the same. The applicant purchases vehicles for demonstration as termed as "Demo Car" against Tax Invoices, which are taken in account as capital assets. The "Demo Car" is used for providing Trial Run/ Demonstration to the customers to understand the features and this is an essential part of marketing and sales promotion to facilitate the sales of cars.

II. Sub-section (1) of Section 16 of CGST Act states that "Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person."

Ill. Section 17(5) of CGST Act states that "Notwithstanding anything contained in subsection (1) of Section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following namely:-

((a) 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, namely: -

(A) further supply of such motor vehicles; or

(B) transportation of passenger; or

(C) imparting training on driving such motor vehicles;

(aa) ..................

(ab) ......................

Provided that the input tax credit in respect of such services shall be available -

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause ((aa) are used for the purpose specified therein ;

(ii) ....................................."

2. The applicant sought Advance Ruling on the following question/issue.-

1. Can Payment of GST Liability on sale of vehicle, spares, labour can be done by utilising the Input GST on purchase of Demo Vehicle, other expenses like Repairs & Maintenance, Insurance etc., relating to Demo Vehicle used for Demonstration and or Trial run purpose?

3. As per Section 97(2) of the Central Goods and Services Tax Act, 2017(herein after referred to as the 'CGST ACT, 2017) and Jharkhand Goods and Services Tax Act, 2017 empowers the

Advance Ruling authority to decide the issue, which are as follows:-

(a) classification of any goods or services or both

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

4. From the aforesaid provisions of Advance Ruling, it is observed that the Applicant is eligible to seek Advance Ruling under sub-para (a) i.e, admissibility of input tax credit of tax paid or deemed to have been paid; of Section 97(2) of the CGST/SGST Act, 2017.

5. Personal Hearing Proceedings:

The Personal hearing of the applicant's Representatives as well as the concerned Jurisdictional Officer was conducted and concluded on 11/08/2020 and 13/08/2020 respectively.

Findings & Discussions:

6.1 The applicant sought Advance Ruling on one question i.e. "Whether Payment of GST Liability on sale of vehicle, spares, labour can be done by utilising the Input GST on purchase of Demo Vehicle, other expenses like Repairs & Maintenance, Insurance etc., relating to Demo Vehicle used for Demonstration and or Trial run purpose?"

6.2 The applicant has relied on the order passed in the case of M/s Chowgule Industries Private Limited by the Authority For Advance Ruling, Maharashtra Bench vide ruling no. GST ARA-18/2019/20/B-121 dated 26/12/2019, wherein the Advance Ruling was allowed in favour of M/s Chowgule Industries Private Limited.

In the said order, the Maharashtra Bench for Advance Ruling quoted that "As per the Sales Policy Bulletin : SPB No. 635 dated 15/09/2010 with the Maruti Suzuki India Limited, the Applicant is required to maintain at least one Demo Vehicle of each model per location, Applicant Purchases these Demo Vehicles against Tax Invoice. The said Demo Vehicles are capital goods accounted under Fixed Assets of the Company excluding GST Component. The GST Component of the said Demo Cars is not utilized for claiming depreciation nor claimed as business expenditure under section 37 of the Income Tax Act."

6.3 The applicant also relied on the order passed in the case of M/s A. M. Motors by the Authority For Advance Ruling, Kerala vide ruling no. Ker/10/2018 dated 26/09/2018, wherein the Advance Ruling was allowed in favour of M/s A. M. Motors.

In the said order, the Kerala Bench for Advance Ruling quoted that "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 are sold at the written down book value.

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 equal to the input tax credit taken on the said capital goods reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods determined as value of taxable supply, whichever is higher."

7. Relying on the judgement passed by abovementioned Advance Ruling Authority, the Demo Cars/ Demo Vehicles were considered as Capital Goods/ Capital Assets. The demo cars purchased from supplier are being capitalised. The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. Sub-section (19) of Section 2 of the CGST Act states Capital Goods as "the value of which is capitalised in the books of accounts of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business."

In this case, demo vehicles is used for furtherance of supply of such vehicles (such as demo car) as the prospective buyer is subjected to training about the features of the car and how to use them and is also used for driving including the test drives.

In view of the foregoing, we pass the following:

ADVANCE RULING

The Advance Ruling is allowed in favour of M/s TITANIA PRODUCTS PRIVATE LIMITED, having GSTN No- 20AAECT4112F1Z2 and the company can claim and set-off the Input Tax Credit of Demo vehicles along with repair, maintenance & insurance under GST with their Liability with following conditions :-

(1) The Applicant is required to maintain up to maximum of one (1) Demo Vehicle of each model till final disposal of that said Demo Vehicle before acquiring new Demo vehicle of the same model with the condition that it is to be shown in the capital goods account.

(2) The company will not claim the depreciation on the GST Components of Demo Cars/ Demo Vehicles as expenditure under Section 37 of the Income Tax Act.

(3) The company will create GST Liability upon sales of Demo Cars/ Demo Vehicles as per sub-section (6) of Section 18.

(4) The Company will maintain separate account of Inward and Outward Supply of Demo Cars/ Demo Vehicles and will produce annual statement along with the Balance Sheet and P&L Account to the concerned Jurisdictional GST Authority.