key highlights from Circular No. 231/25/2024-GST:
- Clarification on Input Tax Credit (ITC) for Demo Vehicles:
- Authorized dealers maintain demo vehicles to provide trial runs and demonstrate vehicle features to potential buyers. These vehicles are purchased from manufacturers and are recorded as capital assets.
- Eligibility for ITC:
- ITC on demo vehicles, typically used for demonstration, is allowed as they are considered part of the “further supply of such motor vehicles” under Section 17(5)(a) of the CGST Act.
- Demo vehicles are excluded from the ITC restriction if they promote the sale of similar vehicles, as this falls under further supply.
- Conditions Where ITC is Not Available:
- If demo vehicles are used for purposes other than further supply, such as staff transportation, ITC is not allowed.
- If the dealer only acts as an agent or service provider for the manufacturer and does not sell the vehicle on their own account, ITC is blocked.
- Capitalization of Demo Vehicles:
- Demo vehicles capitalized in the dealer’s books are considered “capital goods” under Section 2(19) of the CGST Act, allowing ITC eligibility as per Section 16(1).
- If depreciation is claimed on the tax component under the Income Tax Act, ITC on that component is not allowed.
- Sale of Capitalized Demo Vehicles:
- When capitalized demo vehicles are sold, the dealer must pay tax as per Section 18(6) of the CGST Act and related rules.
- Trade Notices and Implementation:
- The circular requests the issuance of trade notices to ensure public awareness of these clarifications and invites feedback on implementation issues.