Admissibility of Input Tax Credit - Motor Vehicles
Seamless flow of input tax credit was the core purpose of the GST law after subsuming all the indirect taxes. Here, the admissibility of credit on motor vehicles has emerged as the burning issue and still in infant stage §ng there is diversity in the provision of the law and the decision being given by Authority for Advance Rulings.
2. Legal provisions
The relevant provision related to the issue under consideration is as under
"Section 17 - Apportionment of credit and blocked credits.
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be Unavailable in respect of the following, namely:
[(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
1. further supply of such motor vehicles; or
2. transportation of passengers; or
3. imparting training on driving such motor vehicles
(aa) vessels and aircraft, except when they are used -
1. for making the following taxable supplies, namely
further supply of such vessels or aircraft; or
transportation of passengers; or
imparting training on navigating such vessels; or
imparting training on flying such aircraft;
2. 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):
Provided that the input tax credit in respect of such services shall be available --
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged —
in the manufacture of such motor vehicles, vessels or aircraft; or
in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;"
3. Facts of the case
The assessee was engaged in supplying cabs on rental basis for the purpose of transportation of passengers. It was further submitted that as people take the car on rent for the transportation of
passengers, therefore, the services though claimed as "rent-a-cab" services but it is closely and essentially associated with transportation of passengers and hence, on reading of the provision as cited above the credit of tax paid on the purchase of motor vehicles is admissible to it
While discussing the matter, it was stated by the Authority for Advance Rulings that the GST Act has been amended with effect from 1-2- 2019 and before amendment the provisions of section 17(5)(b)(iii) of the Act did not allow credit of GST paid on inputs for supply of rent-a-cab service, except under certain specific conditions that are not applicable in the this case. It ruled out credit of input tax paid on the purchase of motor vehicles used for supply of rent-a-cab service if the transaction was effected before 1-2-2019
It further stated that the amended provisions of section 17(5)(b)(iii) of the GST Act do not contain reference to the rent-a-cab service. However, post-amendment, input tax credit shall not be available in respect of supply of the service of renting or hiring of motor vehicles in terms of section 17(5)(b)(i) of the GST Act, unless the inward and the outward supplies are of the same category, standalone or as an element of a taxable composite or mixed supply. Further, section 17(5)(a) of the Act provides that input tax credit shall not be available on inward supply of 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 -
1. a further supply of such motor vehicles; or
2. transportation of passengers: or
3. imparting training on driving such motor vehicles.
It was further discussed that "rent-a-cab" is not defined in the GST Act and therefore, the nature of services has to be identified from the invoices and the related facts. The assessee provides cab rental service to various institutions and in no case such services provided to institutions can fall under "passenger transportation services". From the facts, it was further’ inferred that the service receiver has to pay the assessee a certain amount per month as consideration, irrespective of what distance the cab travels in a particular month. Additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays. For the purpose of covering the cost of fuel, the distance travelled needs to be brought into play, but only if it crosses a certain threshold.
It is, therefore, clear from the above discussion that the nature of the service the assessee provides is classifiable under SAC 9966 as renting of a motor vehicle.
In view of-the facts and the legal provisions stated above, it was held by the Authority for Advance Rulings that the credit of GST paid on purchase of motor vehicles or other inputs for the supply of the "rent-a- cab" service is not admissible.
With due respect, the author of this article differs with the decision passed by the Authority for Advance Rulings in the above-mentioned case. The author wishes to throw light on the provision mentioned in section 17(5)(a)(A) of the CGST Act, 2017, wherein it was said that the credit of tax paid on motor vehicles is admissible where it is used for further supply of such motor vehicle. As the words highlight, it is very clear that the credit of tax paid on motor vehicle is admissible if the same is used in further supply. It is worthwhile to note that the term "supply" has its significance and from reading the meaning of supply as given to it in section 7 of the CGST Act, 2017, it is very widely interpreted to include all sorts of supply, service or sale including renting, leasing, etc.
Thus, where "rent-a-cab" is included in the meaning of the term "supply", and renting of motor vehicles is the further supply of such motor vehicles, hence, the conditions mentioned in section 17 are fulfilled in favour of admissibility of input tax credit to the assessee of tax paid on such motor vehicles. Hence, the above decision needs reconsideration in light of the provisions cited above.
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