GST Circular No 231/2024
The GST circular provides clarification on the availability of input tax credit (ITC) for demo vehicles, which are motor vehicles maintained by authorized dealers to facilitate test drives and showcase features to potential buyers. Dealers purchase these vehicles from manufacturers, capitalize them as assets, and may sell them later at a depreciated value. Key issues include whether these vehicles, often seating 13 or fewer passengers, qualify for ITC under Section 17(5) of the CGST Act, and how capitalization affects ITC eligibility.
According to the circular, demo vehicles are primarily intended for the “further supply” of motor vehicles, aligning with sub-clause (A) of Section 17(5) exemptions, allowing dealers to claim ITC. However, if demo vehicles are used for other purposes, such as staff transport, they do not qualify for ITC. Additionally, dealers acting solely as agents providing
test drive services on behalf of manufacturers cannot claim ITC since they do not directly engage in vehicle supply.
The circular further states that if demo vehicles are capitalized, they are considered business assets, allowing for ITC claims as long as they are used for business activities as per Section 16(1) of the CGST Act. The guidelines ensure uniformity in interpreting ITC eligibility for demo vehicles across dealerships, streamlining tax compliance for the motor vehicle sector.
