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Analysis of new provisions of ITC for a motor vehicle

Analysis of new provisions of ITC for a motor vehicle:

Some modifications in this entry were in demand. Bad drafting of earlier provision was leading to following confusions.

  1. Whether the input tax credit of motor vehicles will be available or not.
  2. ITC of some disputed items like fork trucks was causing issues.
  • In some genuine cases ITC was unavailable due to bad drafting e.g. cash carry vans for banks and cash is not goods.

Let us have a look on modifications. The provisions in red color are one which are added by the amendment Act.

New  Section 17(5) of CGST Act

Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles and other conveyances for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used–– (i) for making the following taxable supplies, namely:—

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

Impact of changes in section 17(5)(a) of CGST Act:

  1. The blockage is only for the motor vehicle for transportation of passengers. Motor vehicles for transportation of goods are not in the list of blockage. No condition is required to be fulfilled to avail the ITC for vehicles meant for carriage of goods.
  2. Motor vehicles for transportation of passengers having capacity of more than 13 people are also excluded from the blockage. Hence now we need to check the ITC availability only for passenger carriage motor vehicle having seating capacity of upto 13 people.

3.They are also eligible for ITC if used for specified purpose.

(aa) vessels and aircraft except when they are used––

(i) for making the following taxable supplies, namely:—

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

Earlier there was a lack of clarity for ITC availability for vessels and aircrafts. Vessels were not falling in definition of motor vehicle. Clause aa is inserted to cover them specifically.

Structure of this entry is similar to the entry in earlier (a) clause. The ITC eligibility will be there if the taxable supply is provided or they are used in transportation of Goods.

 

Availibility pf ITC of insurance , servicing and maintenance of motor vehicle:

(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—

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

This is most important clause. It has clarified about the input tax credit of general insurance, servicing and maintenance. It has made it very simple. Where they are used for specified in clause (a) or (aa). You also need to take care that the provision only covers the motor vehicles covered in clause (a) or (aa). Motor vehicles not covered there are not covered in blockage. Thus their insurance, maintenance and servicing is also not covered in blockage. In simple words we can say that if the ITC of purchase is available then the ITC of maintenance, insurance and servicing will also be available.

The last part of provision is industry specific. This part covers the Manufacturing industry and general insurance industry. The provision allows the Input tax credit to them too. It is an important insertion for both of these industries.

You can send an email at Shaifaly.ca@gmail.com

 

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Profile photo of CA Shafaly Girdharwal CA Shafaly Girdharwal

CA

New Delhi, India

CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.

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