The Authority for Advance Ruling ( AAR ), Kerala has ruled that Input tax paid by a vehicle dealer on the purchase of motor car used for demonstration purpose of the customer can be availed as input tax credit on capital goods and set off against output tax payable under the Goods and Services Tax ( GST ) regime. In the instant case, the applicant, A M Motors, uses cars for demonstration purpose for the prospective customer and after a specific period of time, they are sold off for the book value, paying the applicable taxes at that point of time. Before the AAR, the applicants sought for a clarification that Whether input tax credit on the motor car purchased for demonstration purpose of the customer can be availed as credit on capital goods and set off against output tax payable under GST in the case of a motor car dealer.

The authority noted that the demo car is an indispensable tool for the promotion of sales by providing trial run to customers and to understand the features of the vehicle. “The applicant capitalized the purchase in the books of accounts, The capital goods which are used in the course or furtherance of business, is entitled for input tax credit. As the impugned purchase of demo car is in furtherance of business, the applicant is eligible for input tax credit. Furthermore, this activity does not come under the negative clause, as after a limited period of use as demo car, the vehicles are sold at the written down book value.” It was observed that the availability of input tax credit shall be subject to the provisions of Section 18(6) of the GST Act. In the case of supply of capital goods on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods determined as value of taxable supply, whichever is higher, it said.

Read more at: http://www.taxscan.in/gst-input-tax-credit-demo-cars-aar/29336/