Authorised dealers can claim input tax credit on demo cars

Input Tax Credit is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale.

The Bengal Bench of the GST Authority for Advance Ruling (AAR) has ruled that registered automobile dealers can claim input tax credit (ITC) on demo cars.

In its ruling, the AAR said, “The applicant is entitled to claim input tax credit charged and paid on inward supply of cars which are used for demonstration purpose and supplied further after a specified time period.”

The ruling was in response to an application filed by Landmark Cars East Pvt. Ltd, an authorized dealer of Mercedes-Benz, seeking a clarification on whether it was entitled to claim ITC charged and paid on the inward supply of cars from Mercedes-Benz India, used for demonstration purposes.

Input Tax Credit is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale. In other words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases.

In the case of sale of demo car, the outward supply would attract the same rate of tax as its inward supply, which is 28% GST, plus cess levied on the sale of cars. However, reimbursement received by the dealer from the manufacturer on loss suffered on sale of demo car would attract 18% GST.

Source: HT Auto