Creating Knowledge Bank-CKB : Restriction on Input Tax Credit-Motor Vehicles-Section 17(5)(a)

Section 17(5) 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 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

(ii) for transportation of goods;

In clause (a) section 17(5) of the Act , restriction has been imposed on input Tax credit relating to motor vehicle ,it means that tax credit of ‘input’ and ‘input service’ both will be restricted.

Except if such motor vehicle is being used for

(i) Further supply of such vehicle or conveyance

e.g. dealer of car (say Maruti dealer) would be eligible to take credit of GST charged by the Maruti company

(ii) Input tax credit will be allowed if motor vehicle is being used for transportation of passengers,

Now question arise that whether ITC would be eligible on Motor vehicle which is being used by the company for transportation of employee , my understanding is no ITC would be allowed because it cannot be said a business of transportation of passenger. To avail ITC under this clause output supply should also be classified as transportation of passenger.

Further discussion can be extended that use of motor vehicle for transportation of employees is a “use in the Business” thus it should be allowed, in one of it’s tweeter reply, Department said that ITC on repair & maintenance etc of motor vehicle shall not be allowed however while issuing FAQ Department said that “ITC is allowed if GST paid on insurance and repairs on vehicles which is vehicles is used for Business purpose only.

But keep in mind that such FAQ are just clarification and interpretation sometimes may be different.

(ii) ITC would be allowed if Motor vehicle or conveyance is used for imparting training on driving, flying, navigating;

e.g. A driving training school/institute will be eligible for ITC on GST paid on its inward supply.

(B) ITC on Motor vehicle use for transportation of Goods:- Allowed

To avail ITC on use of such motor vehicle , motor vehicle should be registered with transport authority as commercial vehicle and not for use in “private use”

ITC would not be allowed if vehicle is registered for Private use even it is completely used for business and for transportation of goods.

Whether the input tax credit will be available on a passenger vehicle which is used for transportation of goods only?

Ans. 5As per the CGST Amendment Act 2018, input tax credit on motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons is blocked subject to certain exceptional situations. Transportation of goods is not covered within this provision. So, any motor vehicles for transportation of persons will be considered as a blocked credit even though the same is actually used for transportation of goods. (Resource –FAQ by ICAI )