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ITC on Motor Vehicles and the proposed amendments - Analysis




Motor vehicles have remained a point of discussion from day 1 of new GST Law. The amendments proposed to be discussed at the monsoon session of parliament, would clear things to a very large extent.

It is vide and clear that no Input Tax Credit shall be available on the cars and other motor vehicles being bought for the management personnel. The debate had always been whether input tax credit of GST paid on general insurance, repairs and servicing would be available or not. In Recently proposed amendments, a new section 17(5)(aa) has been inserted to CGST Act 2017 which clarifies that no input tax credit shall be available for GST paid on services of general insurance, repair and maintenance in so far they relate to the motor vehicles not eligible for Input Tax Credit. 

Although the amendment (if passed by the parliament) would have prospective effects but “Remarks” Column of the amendment proposed certainly raise our eyebrows. It says that section 17(5)(aa) is being inserted to clarify that ITC in respect of general insurance, repair and maintenance shall not be allowed. The term clarify actually means that it was never the intent of law to permit such input tax credit. Does this mean that taxpayers who have availed such input tax credit prior to this amendment would need to reverse the same along with interest at the rate of 24%. It is certainly a point of concern, as the Twitter handle of the Government of India itself clarified about this issue and permitted the claim of the Input Tax Credit. This further questions the legal standing and authenticity of the Twitter handle being used for communication with taxpayers.

Next important question had always been about the buses being bought by the taxpayer for commutation of their staff members. The proposed amendments certainly brings relief in this issue. It has been proposed that ITC in respect of motor vehicles used for transportation of passengers having approved seating capacity of more than 13 persons (including the driver) shall be eligible for claim of input tax credit. This means that the taxpayers can now claim Input Tax credit of the GST paid by them on the purchase of buses for commutation of their employees. Such buses normally has approved seating capacity of 40 persons. Since the implementation of GST, taxpayers had entered into various arrangements to avoid their cost on account of GST paid on such buses. Also the word conveyance has been deleted from section 17(5)(a) which means that Input tax credit shall now be available in case of non-motorized conveyances such as rickshaw, cycles etc. The cycles bought by the corporate for its employees for internal transfers would be now eligible for claim of input tax credit.

Further the amendment proposes to allow input tax credit in respect of dumpers, fork lift trucks and other special purpose motor vehicles. This means that the ambit of denial of input tax credit on the motor vehicles has now been restricted and most of the vehicles used purely for the purpose of carrying out business shall be eligible for input tax credit.  On the same lines section 17(5)(a)(iii) now allows the financial institutions including banks to claim input tax credit in respect of motor vehicles used by them for transportation of money.

Although the proposals clarify the issues to a large extent but there are couple of questions which still remains unanswered. 

1. There is need to define the term “passengers”. Does it intent to cover the public use or in cases where a taxpayer charge consideration from its employees, would they also be treated as passengers. This needs a clarification . 

2. Also whether the term “goods” used in section 17(5)(a)(ii) have the same meaning as defined in section 2(52) of CGST Act 2017. Because if that would be the case, motor vehicles used by the outdoor caterers for transportation of their cutlery shall be ineligible for input tax credit. Or in the similar fashion, motor vehicles used by the courier agencies or postal agencies for transportation of documents and parcels would also stand ineligible. Clarification is surely needed in this respect.    

Thanks and Regards

Keshav R Garg
(B.Com, FCA, CS, ISA(ICAI))
Author: Bharat's GST Ready Reckoner
            A Handbook on GST
Member: Indirect Tax Committee of CII, 
Founder: MyGst.MyTax Foundation
Adviser: Industries Association of Chandigarh
Adviser: Chambers of Chandigarh Industries

Address: 3328, First Floor, Sector 27 D, Chandigarh, India - 160 019
Phones: +91-172-461-3328, +91-98880-90008
Mail: keshavgarg@kdai.in



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