Background
Input tax credit can be availed on the goods/services used in course of business of making taxable supplies of goods/services or exports. The credit can be availed subject to list of blocked credit. ITC pertaining to motor vehicles is restricted in few cases. From the time of introduction of GST, there has been confusion on eligibility of credit on motor vehicles. This has led to non-availment of eligible credit in several instances by assesses.
There has also been a recent advance ruling in case of YKK India Private Limited (2019 (2) TMI 1081) [Authority for Advance Ruling, Haryana] which has held that the credit on rent/hire of buses/cars cannot be availed.
In this backdrop, the paper writer has examined the eligibility to credit related to vehicles, both prior to and post amendment in the list of restricted credit as well as important issues in this context.
Availment of credit related to motor vehicles
ITC on Motor vehicles from July 2017 to Jan 2019:
ITC of the tax paid on the motor vehicles was blocked and should not be availed by a registered person. Such ITC could be availed by a person if the motor vehicles are used for-
a. further supply of such vehicles;
b. transportation of passengers;
c. imparting training on driving, flying, navigating such vehicles;
d. For transport of goods
ITC on Motor vehicles purchased post Feb 2019: The eligibility of ITC depends on the approved seating capacity of the motor vehicle, as under:
a. Approved seating capacity, not more than thirteen, including the driver: ITC is blocked/ ineligible. However, ITC of motor vehicles would be availed only if it is used for making the following taxable supplies:
i. Further supply of such motor vehicles, or
ii. Transportation of passengers, or
iii. Imparting training on driving such motor vehicles
b. Approved seating capacity, more than thirteen, including the driver: No restriction and can avail credit.
Credit on motor vehicles used for transport of goods from July 2017 onwards
There is no restriction on availment of credit on vehicles used in course of business, for transport of goods from July 2017 onwards as well as post amendment in Feb 2019.
Example: When a truck belongs to a company engaged in business of supplying taxable goods. Truck is used to transport raw materials to factory premises/send finished goods to customer, whereby the truck ITC can be availed. Similarly, when the materials are transported to site in truck by contractor supplying taxable construction services. ITC is available on truck.
The person engaged in such transportation using motor vehicle, may have to take care that he cannot avail credit if he pays GST at concessional rate under notification where there is restriction to avail credit or the recipient pays under reverse charge[RCM]-such as GTA[where transporter of goods by road is done and vendor issues consignment note/bilti and recipient registered person pays freight and GST under RCM]
Credit on motor vehicle insurance, repairs: For period till Jan 2019
Section 17(5) of CGST Act restricts ITC 'in respect of' motor vehicles. The term 'in respect of' is usually treated as similar to 'in relation to'. This is a broad term and it is expansive. In the case of UOI vs. Vijay Chand Jain AIR 1977 SC 1302, it was held by the Supreme Court that the words 'in respect of' is of a wide connotation.
The said entry may cover expenses relating to repair, insurance and maintenance of motor vehicles and ITC on such services could be availed only in the same circumstance as applicable to the motor vehicles.[given below]-
Such ITC could be available, only if the motor vehicles are used for-
a. further supply of such vehicles or
conveyances;
b. transportation of passengers;
c. imparting training on driving, flying, navigating such vehicles or
conveyances;
Credit on motor vehicle insurance, repairs: Post Feb 2019
Credit on general insurance/repairs/maintenance in respect of such motor vehicles[with seating capacity of 13[including driver] is available as follows:
- When used for specified purposes - onward supply of vehicle/supply of transport of passengers/ training services on motor vehicle driving
- Allowed for manufacturer of Motor Vehicle/vessel/aircraft + to supplier of general insurance services-of Motor Vehicle/vessel/aircraft insured by him
For motor vehicle with approved seating capacity of more than 13 persons, no restrictions on availing vehicle related credit, say on insurance, repairs.
ITC on renting of motor vehicles for period from 1.7.2017 to Jan 2019
There was specific restriction on the ITC of the rent-a-cab services and it could be availed only if such services are used for-
a. making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; or
b. Govt notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force.
The paper writer has examined what is meant by 'rent', 'motor cab' and 'rent-a-cab'.
Meaning of Rent: The term rent is not defined under GST. Random House Websters Unabridged Dictionary sets out what is meant by 'rent' as:
Rent is usually applied to paying a set sum once or at regular intervals for the use of a dwelling, room, personal effects, an automobile.
The term ‘rent-a-cab' and ‘motor cab' is not defined under GST. However, the term 'motor vehicle' has been defined in GST to have the same meaning as assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988. Taking cue from same, accordingly we could refer said Motor Vehicles Act, to understand what is meant by 'cab' under GST, for which we see definition of ‘motor cab', ‘maxi cab' in Motor Vehicles Act, 1988
Motor cab in the Motor Vehicles Act, 1988 is defined therein to mean, anymotorvehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward...
Maxi cab in the Motor Vehicles Act, 1988: It is defined to mean any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver for hire or reward.
However Section 65(20) of the erstwhile Service Act, 1994 defined 'cab' to mean a motor cab, a maxi cab, or any motor vehicle constructed or adapted to carry more than twelve passengers, excluding the driver, for hire or reward.
From the reading of the above definition, provided in erstwhile Service Act [prior to 1.7.2012], cab could cover motor cab/maxi cab/any motor vehicle constructed or adapted to carry more than twelve passengers excluding the driver.
The department may take a view that 'cab' covers motor cab and maxi cab/any motor vehicle to carry more than 12 passengers excluding driver. Therefore, it could dispute and seek to deny the ITC pertaining to renting of the maxi cabs/buses also. Such a view arrived at by relying on definition given under erstwhile Service Tax law may not be correct .
Rent-a-cab under Motor Vehicles Act, 1988: On going to Motor Vehicles Act, 1988 it does not define the term ‘rent-a-cab'. The concept of rent-a-cab is originating from ‘rent-a-cab' scheme, 1989 framed u/s 75 of Motor Vehicles Act, 1988. On referring to the said section or scheme it only refers to motor cab or motor cycle and not other motor vehicles. Therefore, the restriction of credit in the said provision may be said to be limited to motor cabs [constructed or adapted to carry not more than six passengers excluding the driver] and not other motor vehicles.
If such stance were taken then credit would be restricted on renting of only motor cabs to carry not more than 6 passengers[excluding driver].
If call was taken to avail credit on renting of motor vehicle to carry more than 6 passengers[excluding driver] avail such credit under intimation to dept by RPAD letter and seek confirmation to ensure that there are no demands to reverse/pay back such credit availed along with interest at 24%. We caution dept may further dispute such credit, when for employee pick and drop, by alleging it is for personal use of employees.
ITC on renting motor vehicles for period from Feb 2019
ITC on renting or hiring of motor vehicles with capacity of 13 persons[including driver] for transport of persons is available as follows:
• When used for the purpose specified- onward supply of vehicle/supply of transport of passengers/ training services of motor vehicle driving
• Where inward supply of such service is used by the registered person for making an outward taxable supply of same category of goods or services/ or as an element of a taxable composite or mixed supply
• Where it is obligatory for an employer to provide such services to its employees under any law for time being in force
Credit on leasing of motor vehicles for period till Jan 2019
Meaning of Lease: The term lease is not defined in CGST Act, 2017. According to P Ramanatha Aiyer's Advanced Law Lexicon the term 'lease' means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another whether or not for specified period for cash, deferred payment or other valuable consideration without the transfer of ownership and includes a sub–lease but does not include any transfer on hire purchase or any system of payment by installments.
The terms renting and leasing of motor vehicles are different and only ITC of the renting of motor cab is restricted under GST. However, the ITC on leasing services of motor vehicle is not restricted under GST.
Credit on leasing of motor vehicles for period from Feb 2019 onwards
ITC on leasing, renting or hiring of such motor vehicles with capacity of 13 persons[including driver] for transport of persons is available as follows:
• When used for the purpose specified- onward supply of vehicle/supply of transport of passengers/ training services of motor vehicle driving
• Where inward supply of such service is used by the registered person for making an outward taxable supply of same category of goods or services/ or as an element of a taxable composite or mixed supply
• Where it is obligatory for an employer to provide such services to its employees under any law for time being in force
The leasing services of motor vehicle, with capacity more than 13 persons[including driver] for transport of persons is available and is not restricted under GST.
Note:
It maybe noted that when person is engaged in making taxable supply of transport of passengers by any motor vehicles on which output GST was paid at 5%, ITC on goods and services used for such outward supply could not be availed from July 2017 to 13th Oct 2017[refer notification no.11/2017-CT(rate)] and thereafter can avail credit on input services of a vendor who is in same line of business.
Recent advance ruling under GST
In Re: M/S. YKK India Private Limited (2019 (2) TMI 1081) [Authority for Advance Ruling, Haryana]GST was charged by the Contractor for hiring of buses for transportation of employees. GST charged by the Contractor for hiring of cars for transportation of employees.
Question raised was on eligibility to such credit.
Held that:-
• Where any commercial vehicle is hired for transportation of passengers, it would be squarely covered by the phrase 'rent-a-cab' In other words, any person who provides motor vehicle designed to carry ‘passengers', on rent, would be included.
• This also implies that it includes renting of motor cars, motor cabs, maxi cabs, mini buses, buses and all other motor vehicles which are designed to carry passengers, irrespective of their capacity to carry passengers.
• The contentions of the applicant that hiring of buses which can carry large number of passengers would not qualify under 'rent-a-cab' is found to be untenable and the activity of the contractor in the instant case, providing buses or cars on hire to the applicant, is specifically covered under the meaning of 'rent-a-cab', which makes the supply as ineligible for ITC in terms of Section 17(5) of the CGST/HGST Act, 2017.
• The applicant is not eligible for input tax credit of GST charged by the Contractor for hiring of buses/cars for transportation of employees.
Comments:
This ruling is based on the list of restricted credit in GST as it stood prior to amendment in Feb 2019. Further this ruling is based on definition of rent a cab under erstwhile ST law as it stood till 30.6.2012 and not applicable thereafter under GST. In paper writers view, further the AAR may not be legally valid as in common understanding, thebusesare not considered as cab
Conclusion
It is suggested to examine the vehicle related credit and if found eligible can proceed to avail same, under intimation to dept by RPAD letter and seek confirmation to ensure that there are no demands to reverse/pay back such credit availed along with interest at 24%. It maybe noted that the missed out credit related to 2017-18 maybe availed before the filing of GSTR 3B returns for March 2019. This last chance maybe taken to ensure that all eligible credit of 2017-18 is availed.
In this article the paper writer has sought to cover aspects related to eligible credit on the vehicles
The author can also be reached at roopa@hiregange.com
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