Used Vehicle Dealers Can Claim GST ITC on Business Expenses: AAR

The Kerala Authority of Advance Ruling (AAR) has ruled that the Input Tax Credit under Goods and Service Tax (GST) is allowable on repairs, refurbishment, rent, capital goods and the restrictions are only applicable on purchase of used vehicles. The bench of Jomy Jacob IRS and Mansur M.I. has observed that where a registered person is engaged in the business of buying and selling second-hand goods, such as used motor vehicles, and does not avail input tax credit on the purchase of such vehicles, the liability to pay tax shall arise only on the margin value, in terms of Rule 32(5) of the CGST Rules, 2017 read with Notification No. 8/2018-Central Tax (Rate) dated 25.01.2018. Both the Rule and Notification place a restriction solely on the availability of input tax credit in respect of the tax paid on the purchase of the used vehicles themselves. There is, however, no provision under either the Rule or the Notification that prohibits the availment of input tax credit on other inward supplies of goods or services procured in the course or furtherance of business. The applicant Goexotic Plus91 Motors Private Limited is a registered Private Limited Company under the GST regime and is engaged in the business of buying and selling second hand motor vehicles, primarily old and used luxury cars. These vehicles are procured from both registered and unregistered persons. The applicant, before supplying these vehicles to customers, undertakes minor processing activities such as repairs and refurbishment, including the replacement of spare parts. These activities are intended to enhance the resale value of the vehicles but do not alter their fundamental nature. The said repairs and refurbishments are either carried out at the applicant's own service station or through external service stations. For the purpose of valuation and taxation under GST, the applicant proposes to adopt the special valuation mechanism as laid down under Rule 32(5) of the CGST Rules, 2017, which permits payment of GST only on the margin (i.e., the difference between selling price and purchase price), provided that no input tax credit (ITC) is availed on the purchase of the second hand motor vehicles. In the course of business, the applicant incurs various common business expenses such as office/showroom rent, telephone expenses, advertising costs, professional fees, and also procures capital goods such as workshop machinery, office equipment, computer systems, and demo cars, which are utilized in the business operations. The applicant sought the advance ruling on the two issues. Firstly, on the Admissibility of Input Tax Credit (ITC) on Direct Expenditures for Second-Hand Vehicles: In view of the Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018, the applicant would like to get clarification as to whether the input tax credit would be available on inward supplies of goods or services which are in the nature of direct expenditures like spare purchases, repairs and refurbishment costs of vehicles, etc., except on purchase of old or used motor vehicles as mentioned in para 2 of the notification? Secondly, on the admissibility of Input Tax Credit (ITC) on Other Common Business Expenses and Capital Goods: In view of the Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018, the applicant would like to get clarification as to whether the input tax credit would be available on inward supplies of other goods or services except on purchase of old or used motor vehicles as mentioned in para 2 of the notification. That is, whether credit or input tax is available on inward supplies of goods or services like office/showroom rent, telephone, advertisement, professional charges, capital goods, etc., except that on inward supply of old or used motor vehicles. The AAR held that Input tax credit on inward supplies of goods or services such as office/showroom rent, advertisement, telephone, professional fees, and capital goods is admissible, as there is no restriction under Notification No. 8/2018-CT (Rate) or Rule 32(5) regarding such expenses The availment shall be subject to fulfillment of the conditions under Sections 16 to 21 of the CGST Act and Rules 36 to 45 of the CGST Rules. Ruling Details Applicant’s Name: Goexotic Plus91 Motors Private Limited Ruling Date: 11/12/2025 Click Here To Read Ruling Read More: S. 263 Can’t Be Invoked by Treating Court Approved Demerger as an Amalgamation: Madras HC Upholds Carry Forward of Losses

Used Vehicle Dealers Can Claim GST ITC on Business Expenses: AAR

Membership Required

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