ABSTRACT
The present study deals with the implication of GST in the aspect of demo vehicles this can also substituted as demo products. Tax is basically classified into two types direct and indirect tax. In indirect tax after implementation of GST in 2016 the scope and taxable area becomes wider in the ambit of goods and services. In which demo products are treated as good. The taxability of the demo vehicles, Tax rate of demo vehicles, description and classification of such products under , method to classify the product, the problem of availing input tax credit (ITC) in flow of supply of goods are discussed with in the ambit of demo vehicle in accordance with judicial preceding
Key words
Demo vehicles, tax, goods, supply, input tax, tax rate, taxability
INTRODUCTION
Goods and service tax is determined based on place of supply, time of supply, and value of supply. The word supply includes both supplies of goods and supply of services whereas demo vehicles are treated as goods. The transaction of a vehicle involves a three-person manufacturer, dealer, and end consumer. In order to increase the sale of stock vehicles dealer purchase a vehicle and use it for demo purposes which are used for a test drive and showroom display such a vehicle was sold at the depreciated rate by the dealer; hear arises the question of the determination of goods and service tax on demo vehicles
TAXABILITY
To determination of tax on a demo vehicle is based on supply there are basically two elements which constitute supply 1) If a supply is done for consideration and 2) if a supply is done for further business. Based on this element we can conclude that the transfer of a demo vehicle from the manufacturer to the dealer constitutes a supply hence it is taxable under GST Act but the using a demo vehicle by a customer does not constitute a supply which is also not done for consideration so GST is attracted only when the demo vehicle is sold subsequently not when it is in the showroom as a demo vehicle. The dealer is liable to pay tax under GST Act only when the demo vehicle is sold subsequently
TAX RATE
There are two schemes of the rate applicable on the sale of a demo vehicle
Concessional tax scheme[1]
In concessional tax,the scheme is subjected to certain conditions
- If the person is registered under the GST act and claimed depreciation under section 32 of the income tax act 1961, then the price margin is the selling price less depreciated value of the vehicle as on the date of supply negative margin should be considered as nil margin
- If the depreciation is not claimed by the person then the margin price is the selling price and purchasing price
- Income Tax Credit or Center Value Added Tax should not be claimed at the time of purchase
| S.no | HSN | DESCRIPTION OF GOODS | RATE OF TAX | |
| 1 | 8703 | Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and a length of 4000 mm or more. | 18% | |
| 2 | 8703 | Old and used, diesel-driven motor vehicles withan engine capacity of 1500 cc or more and a length of 4000 mm | 18% | |
| 3 | 8703 |
|
18% | |
| 4 | 87 | All old vehiclesmentioned above | 12% |
Normal tax Scheme
The dealer is charged tax on a flat rate of 28% in addition to compensation cess charged appropriately which ranges from 1% to 22% in this scheme the dealer
Income Tax Credit (ITC) on Demo vehicles
Provision on CGST did notmake clarity on claiming ITC on demo vehicle according to the provision in CGST ‘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 further supply of such motor vehicles; or transportation of passengers; orimparting training on driving such motor vehicles. so this provision is clear about ITC can be claimed only when a vehicle is bought for further supply demo vehicle which is not meant for sale but only for promotional purposethere arise a doubt about whether ITC can be claimed for demo vehicles.
Two contradictory opinions are
- ITC cannot be claimed because the supply of the demo car is not for further sale
- ITC can be claimed because after some point in time the car is meant for sale by the dealer
There is also an exception when a dealer makesa forward supply of the good then the dealer can avail full ITC but he can claim only when he choosesa concessional rate scheme
JUDGEMENT AND RULINGS
Chowglue Industries Pvt Ltd[2]
According to CGST Act 2017. Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.[3]
In the said provision there is no bifurcation between capital goods and other goods abiding by this provision ITC can be claimed for capital goods also because a demo vehicle constitutes a capital good by using it in course of business or furtherance of business so the registered applicant can claim ITC under capital goods. section 17(5)(a) also does not block the registered individual from claiming ITC because demo vehicles are also sold at a certain point of time by the dealer in the GST act no time limit is mentioned for further supply. Also during the further transfer, the dealer should pay tax on such transaction value, an amount which is equal to the availed ITC on the demo vehicle which may be reduced by some percentage as prescribed is paid by the dealer whichever is higher
There arise the problem the dealer of the demo vehicle who ultimately sells the demo vehicle can claim ITC by saying the demo vehicle is a capital good and pay the same amount for output tax which is also payable under this act.
A.M Motors[4]
This ruling is also similar to the previous ruling (Chowglue industries Pvt Ltd)
The supplier who supplied the demo vehicle against tax invoice knew that a demo vehicle is a marketing tool to increase the sale and to understand the feature.
The registered applicant can claim ITC for a demo vehicle under section 16(1) of CGST Act 2017 by considering the demo vehicle as a capital good even though section 17(5)(a) of CGST act 2017 does not stop my mentioning “further supply of such motor vehicles”[5] in which the time limit is not mentioned so the registered individual who availed for ITC can claim and use it to set off the output tax liability
Khatwani sales and service[6]
The facts of this case are the dealer who bought the demo vehicle for imparting training about the feature of the vehicle, and test drivingto the prospective buyers according to section 17(5)(a) of CGST Act the demo car can be treated as capital good and ITC can be claimed by the applicant but according to another clause of the same provision ‘works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;’[7] this proviso determines the demo vehicle in the different perspective from A.M motors and Chowglue Pvt. Ltd.
The court held that the selling of a demo vehicle after some point in time should be treated as selling a second-hand vehicle in the subsequent year the depreciation should be charged and calculated as in the sale of a second-hand vehicle and also the amount of GST is not decided based on the amount in which the demo vehicle is sold in the subsequent year, hence the demo vehicles can be treated as a capital asset but the ITC cannot be claimed by the registered individuals or applicants or basically the dealer.
M/s Platinum Motocorp LLP, Manesar[8]
The fact of the case is in addition to buying cars for future supplies, the applicant also buys “Demo Cars” for use in demonstrations. Each Demo vehicle may be utilised for demonstration purposes for a maximum of two years following the date of purchase, at which point it may be sold as a used vehicle.
The dealer paid GST based on the provision in CGST Act 2017
‘In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher[9] the court held that, the GST paid on buying of demo vehicles cannot be claimed as Input Tax Credit and set off against output tax payable under the GST. No Input Tax Credit can be availed on the ancillary Input Services such as Insurance and Repair & Maintenance in respect of the above-mentioned vehicles.
CONCLUSION
So according to the latest ruling the dealer cannot avail or claim ITC and set off against output tax only interpreting the time of supply of the demo vehicle this decision has only the binding effect this ruling can also be reversed by the said authority of law.
[1] Notification No.-8/2018 Central Tax (Rate) dated 25-1-2018
[2]GST-ARA-18/2019-20/B-121 dated 26.12.2019
[3]Section16(1)of CGST Act 2017
[4]Advance ruling No. Ker/10/2018 dated 26.09.2018
[5]Section 17(5)(a) of CGST Act 2017
[6]LLP order No 13/2020 dated 23.07.2020
[7]Section 17(5)(c) of CGST Act 2017
[8]Advance Ruling No. HAR/HAAR/2018-19/40
[9]Section 18(6) of CGST Act 2017