The circular provides clarifications regarding the availability of input tax credit (ITC) for demo vehicles used by authorized motor vehicle dealers. These vehicles are used for trial runs and demonstrating features to potential buyers.
Key Issues Addressed
- Availability of ITC on Demo Vehicles for Passenger Transportation
- Question: Whether ITC is available for demo vehicles used for transporting passengers with a seating capacity of not more than 13 persons, as per Section 17(5)(a) of the CGST Act.
- Clarification: ITC is not blocked for demo vehicles as they are used for further supply of such motor vehicles. Demo vehicles promote the sale of similar vehicles, thus qualifying for ITC under Section 17(5)(a)(A).
- Usage of Demo Vehicles for Other Purposes
- Clarification: If demo vehicles are used for purposes other than further supply (e.g., transporting staff), ITC is blocked under Section 17(5)(a). Similarly, if the dealer acts as an agent for the manufacturer and not directly involved in the sale, ITC is also blocked.
- Capitalization of Demo Vehicles
- Question: Whether ITC is available when demo vehicles are capitalized in the books of account by authorized dealers.
- Clarification: Demo vehicles, when capitalized, are considered capital goods under Section 2(19) of the CGST Act. ITC is available as these vehicles are used in the course or furtherance of business. However, if depreciation is claimed on the tax component, ITC is not allowed as per
Section 16(3). Upon sale of capitalized demo vehicles, tax must be paid as per Section 18(6) and Rule 44(6).