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ITC ON MOTOR CAR USED FOR TRANSPORTATION PASSENGERS FOR A RESORT

22 April 2023

Dear Experts

One of Clients wants to avail ITC on the purchase f a luxury SUV 5 seater intended to rent it to a resort .They will give a monthly amount as rent + GST @ 18%. Since the ITC of Motor Car in under blocked credit whether he can avail ITC on the Motor vehicle he purchased for renting?

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9 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (171335 Points)
Replied 22 April 2023

No.

According to Section 17(5) (a) of CGST Act, input tax credit is not available on motor vehicles used for transportation of persons having approved seating capacity of less than thirteen persons, this includes the seat of the driver.

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ashish (ca) (82 Points)
Replied 22 April 2023

As per the provisions of the GST Act, input tax credit (ITC) is not available for the purchase of a motor vehicle that is intended for transportation of persons. As per Section 17(5)(a) of the CGST Act, 2017, ITC in respect of motor vehicles and other conveyances is blocked, except when they are used for:

Making taxable supplies of such vehicles or conveyances, or

Transportation of passengers or goods, or

Training purposes

In the given scenario, the luxury SUV 5-seater is intended to be rented out to a resort, and hence it would not be considered as being used for
transportation of passengers or goods by the recipient. Therefore, the ITC on the purchase of the motor vehicle would not be available as per the GST Act.

It is important to note that even though the resort is paying rent for the vehicle along with GST at 18%, it would not make any difference to the availability of ITC. This is because the ITC is specifically blocked for motor vehicles and other conveyances, and the nature of the supply or the taxability of the rent paid does not change this fact.

Hence, in the given scenario, the client cannot avail ITC on the purchase of the luxury SUV 5-seater that is intended for renting to a resort.

Pankaj Rawat (GST Practitioner) (55047 Points)
Replied 22 April 2023

Yes ITC available.
As per Proviso Under Section 17(5) (b) "ITC is is available in respect of supply of goods or services or both when it is make for an outward supply of goods or services or both or as elements of a Taxable Composit or Mixed supply "
So as your client is engaged in further supply of renting of MV & not being consumed by himself the ITC surely is available.

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (171335 Points)
Replied 23 April 2023

The interpretation is correct in all the manner, unless they are in block credit list.

E.g. ITC on property cannot be claimed even if the property is to be given on rent.. Though there is demand for that, and is sub-jurisdictional.

Similarly....

See below FQA by CBEC

Q295. Can a company take credit of a motor vehicle with a seating capacity of more than 13 used for transportation of employees?

Ans. From Feb 2019 section 17 (5) (a) of the CGST Act, provides that ITC shall be disallowed on motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver). Hence ITC on motor vehicle with seating capacity of more than 13 is allowed if it is used in the course or furtherance of business including use for transportation of employees.

With the introduction of new provisions with effect from Feb 2019, ITC on renting, leasing, and hiring motor vehicles has been disallowed only for vehicles having capacity up to 13 seats (including driver) subject to 2 exceptions.

These exceptions are as follows:

Case 1:-
- The Vehicle has an approved seating capacity of more than 13 persons (including driver),
- The service of leasing, renting or hiring is used for business
- The service provider furnishes invoice as prescribed,
- And all other conditions are complied with as per law.
Case 2:-
- The Vehicle has an approved seating capacity of upto 13 persons (including driver),
- An employer must provide the same to its employee under any law for the time being in force,
- The service of leasing, renting, or hiring is used for business.
- The service provider furnishes invoice as per Section 31 and Rule 46,
- And all other conditions are complied with as per law.

Here query is for claim of ITC over purchase of motor vehicle having less than 13 passengers:

Which can be availed only when the vehicle is used for making taxable supplies by the following.

a) Supply of other vehicles or conveyances, vessels or aircrafts.

If you are in the business of supplying cars then ITC will be available.

For example, a car dealer purchases a car for Rs.50 lakh plus 14 lakh GST (ignoring cess calculations). The same car was later sold for 70 lakhs along with Rs.19.60 lakh GST. Since he is a dealer, he can claim ITC of 14 lakhs and pay only Rs.5.60 lakh.

b) Transportation of passengers

If you are providing transportation of passengers then ITC will be allowed on the vehicle purchased.

For example, Happy Tours purchased a bus for inter-city transport of passengers. ITC is available.

c) Imparting training on driving, flying, navigating such vehicle or conveyances or vessels or aircrafts, respectively.

A driving school purchases a car to give training to students. The school can claim ITC on the GST paid on the car.

d) Transportation of goods

ITC will be allowed on motor vehicles (and other conveyances) used to transport goods from one place to another. However, this is concerning other transporters and not goods transport agencies (GTA).

Any AAR RULING will help to understand for the claim of ITC over such vehicles when rented out.

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Pankaj Rawat (GST Practitioner) (55047 Points)
Replied 23 April 2023

Dear Sir Sh. Dhiraj Lal ji

As per point (b) Person Engaged in business of transportation of passengers (Taxi Services) charging GST 18% on FCM can avail ITC on the Capital Goods , that's what mentioned proviso under Section 17(5) is prescribing.

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Pankaj Rawat (GST Practitioner) (55047 Points)
Replied 23 April 2023

Dear Sir Sh. Dhiraj Lal ji

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (171335 Points)
Replied 23 April 2023

It means 'Renting of motor vehicle' with or without driver would be same as tours & travel business for ITC claim, even if HSN codes differ.

Thanks.

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Pankaj Rawat (GST Practitioner) (55047 Points)
Replied 24 April 2023

Sir
As per Circular 177/09/2022 : Under S.no.15 Its renting of MV (SAC : 9966) not Service of transportation of passengers (SAC 9964) . So Renting of MV with for transport of passengers fall under SAC 9966 & according to explanatory notes to heading 9966 the Service covered here is renting of MV for tranport of passengers for the period of time where the renter defines how and when the vehicle will be operated hence the GST rate 18% with ITC.

So there is a clear distinction exists in "Service of transport of passengers " & "Renting of MV"

(The query is vehicle given monthly on rent )

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