Can ITC be availed on motor vehicles used for transportation of passengers when there is an intention to resell the vehicle after using it for a defined period of time ?
Section 17(5)(a) blocks ITC in respect of motor vehicles for transportation of persons having seating capacity of not more than 13 persons (including driver)
However, 17(5)(a)(A) provides that ITC shall not be blocked when they are used for making “further supply of such motor vehicles.”
There seems to be ambiguity as to when the intention of further supply of such motor vehicles should be established. Is it at the time of purchase of the motor vehicle itself or after a period of time. Does law cover situations of change in intended use in the future for availing ITC at the time of purchase.
Certain companies may have a policy to dispose off the motor vehicles after a pre-defined period (say 2 years or 3 years) or after crossing a particular level of usage (say 25,000 kms).
While the Company has an intention at the time of purchase for making a further supply of such vehicles, the same is at a future undecided date.
Interpretation 1:-
Section 17(5)(a) refers to actual use of such motor vehicles for further supply of such motor vehicles. An interpretation can be made that the said provision is applicable only at the time of availment. Subsequent change in use or application to the permitted purposes for availing ITC does not appear to be envisaged in section 17(5)(a).
In Brindavan Beverages Pvt. Limited vs. CCE and in CCE vs. Surya Ro Roshni Ltd it was held that the eligibility of credit should be examined at the time of availment, and subsequent change in use would not alter the credit position.
Interpretation 2:-
The provision can be interpreted as an end-use test, ITC may be availed on the argument that, since the end purpose of resale, i.e., taxable supply has taken place at a future date, credit should be available to the company and the fact of making such taxable supply is certain at the time of purchase.
Still the question remains as to whether subsequent adoption of the motor vehicle for permitted credit eligible purposes, though known at the time of purchase, be deemed to be an absolute ground for claiming ITC, since eventually in majority of the cases, every such motor vehicle would be re sold.
