Background:
As per the agreement, Landmark Cars acts as a sales broker for Mercedes Benz India (MB India), purchasing demo cars for promotional purposes. The applicant has sought an advance ruling on the following questions:
– Whether the applicant can avail Input Tax Credit (ITC) for demo cars?
– What will be the classification and tax rate at the time of demo car sale?
– Does the amount received from MB India to compensate for demo car sales losses constitute a ‘supply’? If yes, what is the classification and tax rate?
Applicant’s Submission:
– Although Section 17(5)(a) denies credit of motor vehicles meant for passenger transport having a seating capacity of less than 13-seater capacity [incl. driver], however, applicant will be covered in the exceptions in subclause (A) i.e., ‘further supply of such motor vehicles’.
– The Applicant stressed on the word ‘such’ and submitted that the word refers to the specific motor vehicle that has been acquired and encompasses all vehicles acquired for resale, including demo vehicles. Further, law does not prescribe time limit for resale.
– In case of reimbursement of loss on sale of demo car, the same should be treated as inherently linked to main supply and accordingly MB India should issue credit note.
AAR SUBMISSION AND RULING
– AAR held that applicant holds the inventory of the demo cars, puts to use for demonstration purposes and thereafter sells at a lower price. GST Law does not restrict ITC if goods are supplied at a price lower than procurement price.
– Section 17(5)(a) prohibits credit on motor vehicles with less than 13-seater capacity for passenger transport, but permits it when used for further supply. Despite deterioration, demo cars do not cease from being the cars they were procured. The demo cars are procured for further supply but with a condition that they will be kept for a specified period of time. Hence the applicant is eligible for the credit.
– Since it has been held that demo cars are the same as the once procured, the classification and rate of tax at the time of its further sale of demo car, will be the same as that at the time of inward supply.
– For “Demo Car Loss Sharing,” MB India has agreed to compensate the applicant for losses incurred on demo car sales. By agreement, the applicant opts to tolerate the act of suffering the loss for a consideration, aligning with Circular 178/10/2022-GST. Consequently, this qualifies as a service supply, classifiable under 999794 and taxable at 18%.
Comment:
This advance ruling suggests that any vehicle purchased, used for its intended purpose, and subsequently sold could potentially qualify for credit, regardless of the industry.
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