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input tax creditAs per section 17(5) of the CGST Act input tax credit shall not be available in respect of motor vehicles and other conveyances except when they are used for making the following taxable supplies

1. Further supply of such vehicles or conveyances.

2. Transportation of passengers.

3. Imparting training on driving, flying, navigating such vehicles or conveyances.

4. For transportation of goods.

Transportation of passengers or transportation of goods means commercial use of such vehicles for transporting either passengers or goods. If the taxable person transports its own employees free of cost it will not be covered by the aforesaid clause and hence he will not be able to claim benefit of input tax credit in respect of the same. Board has also issued FAQ in this regard.

Now regarding transportation of goods whether input tax credit will be available only in respect of freight earning vehicles or vehicles used for transporting own goods will also be entitled to credit has not been clarified by the department. In such a scenario two different interpretations are possible.

One interpretation is that input tax credit will not be available for self -supplying vehicles because taxable supplies here means freight earning activity. The focus here is on the activity of transportation and not the goods being transported. Such activity of self- transportation is neither taxable nor capable of being valued.

The other interpretation might be that even if the vehicle is used for supplying own goods if those goods are taxable supplies the taxable person will be entitled to credit of such input tax paid on such vehicle. The purpose of GST was to promote seamless flow of input credit which was no happening under tax regime it replaced. So the law particularly in relation to input tax credit should be viewed liberally. The goods being transported are taxable supplies and are meant for commercial use of the vehicle. The purpose of the restrictive clause is to make input tax credit restricted only to commercial use.

In the present case the vehicle is being used for commercial purpose. So Input Tax Credit has to be made available in respect of such supplies. The author supports the second interpretation and hence in his view the taxable person would be allowed to take input credit in respect of the vehicles used for transporting own goods of taxable person.

(The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com Mobile No.  91 9007909221 or Twitter @CARKBarmecha.)

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One thought on “Input Tax Credit on vehicles or conveyances under GST

  1. venkat ganta says:

    Dear Sir,
    Transportation of passengers or transportation of goods means commercial use of such vehicles for transporting either passengers or goods. If the taxable person transports its own employees free of cost it will not be covered by the aforesaid clause and hence he will not be able to claim benefit of input tax credit in respect of the same. Board has also issued FAQ in this regard.

    Can you please provide link to get Board FAQ in this regard.

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