Authority for Advance Rulings, Madhya Pradesh Khatwani Sales And Services L.L.P., In re – [2021] 124 taxmann.com 149 (AAR – MADHYA PRADESH)

 Short Overview :

 The applicant was authorized dealer of KIA for sales & services of vehicles in Jabalpur.

 It purchased the vehicles from the supplier against tax invoices after paying tax and capitalized the demo vehicles in the books of accounts.

It filed an application for advance ruling to determine whether input tax credit on the Motor vehicle purchased for demo purpose can be availed.

The Applicant declared that they would not claim depreciation on tax component of the capitalized Demo Vehicles.

 The Authority for Advance Ruling observed that there is clear provision in law for admissibility of Input tax credit on motor vehicles.

The applicant would require Demo Vehicles as they would be essential for promoting the sale of motor vehicles.

But the input can’t be taken unless motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons would be used for further supply of such motor vehicles or transportation of passengers or imparting training on driving such motor vehicles.

By subsequent sale of Demo Vehicle after one or two year, it cannot be said that the Demo Vehicle would be for further supply.

 Therefore, it was held that the applicant would not be eligible for Input tax credit on Demo vehicles in view of provisions of Section 17(5)(a) of GST Act in spite of the fact that the Demo Vehicles would be used by the applicant for furtherance of their business.