GST UPDATE ON ITC ON VEHICLE AND THEIR SERVICES
Widening the provision but narrowing down the scope
Notification No. 02/2019 – Central Tax dated 29.01.2018 has been issued bringing into force the date of applicability from which the CGST (Amendment) Act, 2018 shall come into force. It notifies 1st February 2019 as the date on which the provisions of CGST (Amendment) Act 2018 shall come into effect. This update intends to discuss one of the most important provisions of the said act that is on the admissibility of Input tax credit on motor vehicles and services related to motor vehicles.
The earlier provision relating to credit on motor vehicle under Section 17(5) of the CGST Act read as follows:-
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following,namely:—
(a) Motor vehicles and other conveyances except when they are used––
for making the following taxable supplies,namely:—
Further supply of such vehicles or conveyances;or
Transportation of passengers;or
Imparting training on driving, flying, navigating such vehicles or conveyances;
For transportation ofgoods;"
Thus, ITC is not allowed "in respect of" motor vehicles and other conveyances except in specified cases. There was a lot of discussion on the phrase "in respect of" as used in the above clause. Some experts were of view that it has wider impact and covers all the goods and services that are relatable to mot(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following,namely:—
(a) Motor vehicles and other conveyances except when they are used––
for making the following taxable supplies,namely:—
Further supply of such vehicles or conveyances;or
Transportation of passengers;or
Imparting training on driving, flying, navigating such vehicles or conveyances;
For transportation ofgoods;"
Thus, ITC was not allowed on motor vehicles except in the circumstances provided therein. Hence, in most of cases, the credit on purchase of new motor vehicle for passengers was not allowed. However, there was dispute on credit of repair and maintenance or insurance of motor vehicle. The words "in respect of" appearing in definition created confusions. There was a lot of discussion on the phrase "in respect of" as used in the above clause. Some experts were of view that it has wider impact and covers all the goods and services that are relatable to motor vehicles. The other school of thought is of the view that this phrase is very restricted and is limited to ITC on the purchase of new motor vehicles. However, the credit on repair and maintenance and insurance of motor vehicle is allowed. The above confusion with regard to availability of credit with regard to insurance and repair & maintenance had been clarified by way of answer given to an FAQ by Government. It was clarified that credit on repair as well as insurance of motor vehicle is allowed. It is worthwhile to be noted that FAQs have no legal validity.
However, Section 9 of the CGST (Amendment) Act has substituted clauses (a) of sub section (5) of Section 17 with effect from 1.2.2019 which read as follows:
“(a) motor vehicles for transportation of persons having approved seating
capacity of not more than thirteen persons (including the driver), except when
they are used for making the following taxable supplies, namely:—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so
far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa).”
It is interpreted from the above provision that scope of availing ITC on motor vehicles and on their respective services of insurance, repair and maintenance has been very much narrowed down. Credit can be taken only with respect to those motor vehicles having seating capacity of more than 13 persons including driver. It can further be understood from Clause (ab) enumerated above that services of insurance, repair and maintenance with respect to only those motor vehicles can be taken on those vehicles on which credit is allowed. This has clearly cut down the availment of credit on motor vehicle, repair and insurance of these vehicles only having sitting capacity of more than 13 persons. Normally, trade and industry use motor cars of capacity of 5 to 9 persons. Hence, credit on motor cars as well as credit on repair, maintenance and insurance of such vehicle will not be allowed. Credit in respect of buses will be allowed. However, there is no change for credit on transportation vehicles carrying goods.
Widening the provision but narrowing down the scope
Notification No. 02/2019 – Central Tax dated 29.01.2018 has been issued bringing into force the date of applicability from which the CGST (Amendment) Act, 2018 shall come into force. It notifies 1st February 2019 as the date on which the provisions of CGST (Amendment) Act 2018 shall come into effect. This update intends to discuss one of the most important provisions of the said act that is on the admissibility of Input tax credit on motor vehicles and services related to motor vehicles.
The earlier provision relating to credit on motor vehicle under Section 17(5) of the CGST Act read as follows:-
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following,namely:—
(a) Motor vehicles and other conveyances except when they are used––
for making the following taxable supplies,namely:—
Further supply of such vehicles or conveyances;or
Transportation of passengers;or
Imparting training on driving, flying, navigating such vehicles or conveyances;
For transportation ofgoods;"
Thus, ITC is not allowed "in respect of" motor vehicles and other conveyances except in specified cases. There was a lot of discussion on the phrase "in respect of" as used in the above clause. Some experts were of view that it has wider impact and covers all the goods and services that are relatable to mot(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following,namely:—
(a) Motor vehicles and other conveyances except when they are used––
for making the following taxable supplies,namely:—
Further supply of such vehicles or conveyances;or
Transportation of passengers;or
Imparting training on driving, flying, navigating such vehicles or conveyances;
For transportation ofgoods;"
Thus, ITC was not allowed on motor vehicles except in the circumstances provided therein. Hence, in most of cases, the credit on purchase of new motor vehicle for passengers was not allowed. However, there was dispute on credit of repair and maintenance or insurance of motor vehicle. The words "in respect of" appearing in definition created confusions. There was a lot of discussion on the phrase "in respect of" as used in the above clause. Some experts were of view that it has wider impact and covers all the goods and services that are relatable to motor vehicles. The other school of thought is of the view that this phrase is very restricted and is limited to ITC on the purchase of new motor vehicles. However, the credit on repair and maintenance and insurance of motor vehicle is allowed. The above confusion with regard to availability of credit with regard to insurance and repair & maintenance had been clarified by way of answer given to an FAQ by Government. It was clarified that credit on repair as well as insurance of motor vehicle is allowed. It is worthwhile to be noted that FAQs have no legal validity.
However, Section 9 of the CGST (Amendment) Act has substituted clauses (a) of sub section (5) of Section 17 with effect from 1.2.2019 which read as follows:
“(a) motor vehicles for transportation of persons having approved seating
capacity of not more than thirteen persons (including the driver), except when
they are used for making the following taxable supplies, namely:—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so
far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa).”
It is interpreted from the above provision that scope of availing ITC on motor vehicles and on their respective services of insurance, repair and maintenance has been very much narrowed down. Credit can be taken only with respect to those motor vehicles having seating capacity of more than 13 persons including driver. It can further be understood from Clause (ab) enumerated above that services of insurance, repair and maintenance with respect to only those motor vehicles can be taken on those vehicles on which credit is allowed. This has clearly cut down the availment of credit on motor vehicle, repair and insurance of these vehicles only having sitting capacity of more than 13 persons. Normally, trade and industry use motor cars of capacity of 5 to 9 persons. Hence, credit on motor cars as well as credit on repair, maintenance and insurance of such vehicle will not be allowed. Credit in respect of buses will be allowed. However, there is no change for credit on transportation vehicles carrying goods.
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