No ITC on Demo vehicles purchased even though in the course of business

Last updated: 17 February 2021

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Quick Summary

The Madhya Pradesh Authority for Advance Ruling (AAR) has determined that car dealerships cannot claim Input Tax Credit (ITC) on vehicles used as demos. Despite being used to further the business and generate sales, these demo vehicles do not meet the specific conditions outlined in Section 17(5)(a) of the CGST Act for ITC eligibility. The ruling clarifies that selling demo cars after a period is considered selling a used vehicle, not a further supply of the same nature as required for ITC.

Court :
AAR Madhya Pradesh

Brief :
The Hon’ble AAR Madhya Pradesh in M/s. Khatwani Sales and Services LLP [Order No. 13/2020 dated July 23, 2020] held that since the demo vehicles do not comply to any of the conditions prescribed in Clause (A), (B) and (C) of Section 17(5)(a) of the Central Goods and Service Tax Act, 2017 ('CGST Act'), therefore no Input Tax Credit ('ITC') can be claimed on the demo vehicles purchased by the authorized dealer of KIA.

Citation :
Order No. 13/2020 dated July 23, 2020

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Judgement posted by

Bimal Jain

Service

FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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