ITC is blocked on certain types of motor vehicles even though they may be used in the course or furtherance of business. This would be so irrespective of the fact that the same is used for daily commutation to and from the place of business by the owner or employee of the company.
Further to the above, there are certain exceptions based on the purpose of usage and the nature of business of the registered person. The following table summarises the eligibility of ITC for the various periods:
| From 01-07-2017 to 31- 01-2019 | | |
1 | Motor vehicles made and used for transportation of goods | Motor vehicles made and used for transportation of goods | No change in the eligibility of ITC even after amendment. |
2 | Motor vehicle for transportation of passengers was allowed when used for • Further supply of such vehicle or conveyance • For transportation of passengers • For imparting training on driving | Motor vehicle for transportation of passengers having approved seating capacity of more than 13 persons Motor Vehicles for transportation of passengers having approved seating capacity upto 13 persons is allowed only when used for: • Further supply of such motor vehicles • For transportation of passengers • For imparting training on driving such motor vehicles | ITC is allowed. After 1-02-2019, there is no condition for use of such vehicle for specific purposes. W.e.f. 1-02-2019 blocking of ITC is only with respect to motor vehicles for transportation of passengers having approved seating capacity upto 13 persons subject to exceptions. |
Transportation of goods Before the amendment of 1st February 2019, a separate exception had been there in the law in respect of motor vehicles used for transportation of goods. This means that ITC had been allowed specifically for motor vehicles if the primary purpose was for transportation of goods. After 1 st February 2019, the blockage of ITC is on motor vehicles for transportation of persons. Blockage of ITC is like a negative list wherein ITC is allowed except that which is blocked by section 17(5). Since, the blockage of ITC is not for motor vehicles made for transportation of goods in the first place, the same stands fully allowed as per law. It may be noted that the actual usage of the motor vehicles is not relevant. What is relevant is that the purpose for which such motor vehicles have been designed or approved. If a motor vehicle designed to carry passengers is used for transportation of goods, the ITC would continue to be blocked.
Approved Seating Capacity of more than 13 persons
ITC would be blocked only on motor vehicles where the approved seating capacity is upto 13 persons including the driver of the vehicle as well. Where the said capacity is more than 13 persons, ITC would be allowable irrespective of the number of the persons or the use of such vehicle. In case of seating capacity restriction, one needs to check the approved seating capacity by the Regional Transport Authority. Here one needs to note that the availability of input tax credit is dependent on the approved seating capacity irrespective of the actual number of persons sitting. Therefore, ITC would be allowable on buses used for transportation of employees to and from the place of business to their residence. However, ITC would be blocked if the transportation is being done through a car.
Transportation of passenger
Input tax credit will be allowed on motor vehicle which is used for providing the service of transportation of passengers. The statutory provisions have employed the phrase “used for making taxable supplies of transportation of passenger”. The term “for” as per the Cambridge Dictionary means “intended to be given to”. This means that the vehicle must be registered as a passenger transport vehicle with the State Transport Department. Where any vehicle is temporarily used for passenger transport and is not registered as a passenger transport vehicle, ITC would not be allowed on it. It must be noted that the ITC would be allowed only where the income is earned by way of passenger fare. However, the final eligibility of ITC would also depend on the entry in the rate notification.
Used for providing training on driving of vehicles
ITC would be allowed where the purchase of motor vehicles is used for providing training on driving of motor vehicles. This means that the purpose of purchase should be to provide such training. If any vehicle is purchased for any other purpose and is registered as such, ITC would not be allowable simply because later it is converted into a motor vehicle for training. Therefore, the intent of its usage should be present at the time of purchase.
Further supply of motor vehicle
Section 17(5) of the CGST Act allows input tax credit on purchase of motor vehicles, vessels and aircraft if there is further supply of such motor vehicle, vessel or aircraft as the case may be. Here it is important to note that the word used is “supply” not “sales”. The word ‘supply’ has been defined under section 7 of the CGST Act. The said definition is a wide one which includes within itself sale, lease, rental etc. Therefore, the motor vehicle purchased and used for renting / sale of such vehicles would also be covered. Hence, the ITC would be allowable both to an automobile dealer and a car rental company under this provision. Having said this, one needs to check tariff notification in case any restriction is placed on availment of input tax credit. Further, in case any supply is exempt in terms of section 2(47) of the CGST Act there shall be reversal of input tax credit in terms of the restrictions placed by section 17 of the CGST Act read with rule 42 / 43 of CGST Rules.
GENERAL INSURANCE, SERVICING, REPAIR AND MAINTENANCE OF MOTOR VEHICLES
1. Section 17(5)(ab) of the CGST Act provides that ITC would not be available on certain expenses relating to motor vehicles. The expenses on which ITC would be disallowed are the services of general insurance, servicing, repair and maintenance on such motor vehicles.
2. At the outset, it may be noted that #ITC would be blocked in respect of expenses on motor vehicles only where #GST ITC on the purchase of such motor vehicles also stands disallowed. This means that the restriction on relevant expenses of each nature of motor vehicles would be the same as upon purchase of motor vehicles. Thereby, the ITC would be allowable on the expenses with regard to motor vehicles in the following cases:
a. Motor vehicles for transportation of goods
b. Vehicle seating capacity is more than 13 persons
c. It is used for transportation of passengers
d. It is used for providing training on driving of vehicles
e. It is used for further supply of motor vehicles
3. It may be noted that the expenses mentioned in the heading are exhaustive. This means that only on the expenses of general insurance, servicing, repair and maintenance, ITC would be blocked. If there are any other expenses in respect of motor vehicles (say car parking), then ITC would not be blocked.
4. Section 17(5)(ab) is on the disallowance of input tax credit on the services of general insurance, servicing, repairs and maintenance in so far as they relate to motor vehicles, vessels or aircraft and this disallowance is applicable from 01/02/2019.Thus, for the period from 01/07/2017 to 31/01/2019 there was no entry to bar the availment of input tax credit on general insurance, servicing, repairs and maintenance. Hence, the ITC may be allowable.
5. For services of general insurance, servicing, repairs and maintenance, credit of input tax is allowed where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein and where such services are received by a taxable person engaged—
a. in the manufacture of such motor vehicles, vessels or aircraft; or [for e.g free maintenance during first year of sale. The said benefit is not allowed if the same are incurred by the dealer]
b. in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him; [for e.g. repair expenses incurred by the insurance company during settlement of claims.] Thus, in case of services of general insurance, servicing, repairs and maintenance, input tax credit shall be allowed in scenarios as explained above.