This article is continuation of the earlier article wherein it was detailed that why Input Tax Credit should be allowed of the taxes paid on the motor vehicle which have been capitalized and sold later on. The previous article articulated why 17(5)(a) should be interpreted in a manner different from how till now it has been perceived. The link to the earlier article is given below for reference.
So let’s analyze, whether at all 17(5)(a)(i) allows credit only when motor vehicle is supplied by persons engaged in the business of buying and selling motor vehicle and denies credit when motor vehicle is supplied by a registered person as part of disposal of fixed asset.
Let’s start with the definition of business and then move on to how sale of capital asset is treated as supply under GST and lastly once an event has been included as supply, whether provisions of section 17(5)(a)(i) make any difference for sale of capital asset or sale out of stock.
- Definition of Business: Definition of Business reads as under:
(17) “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
Clause (d) of the definition specifically provides that supply or acquisition of goods including capital goods in connection with commencement or closure of business would be included in business. Although sub-clause (d) only contains acquisition or supply of capital goods on commencement or closure of business, but acquisition or supply of capital asset during the course of business would be included under sub-clause (a) to (c) in the definition of business.
It could further be inferred that when acquisition or disposal of capital asset at the time of commencement or closure of business are included, acquisition or supply of capital asset during the course of business would be included as a natural extension.
Therefore, acquisition or supply of motor vehicle by any person other than the person indulged in buying and selling of motor vehicles, is also included in definition of business as is acquisition or supply of motor vehicle by a person indulged in buying and selling of motor vehicles.
2. Scope of Supply:
Now if we refer to section 7(1)(a) of the CGST Act, 2017 it provides that
- (1) For the purposes of this Act, the expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
Section 7 details about the scope of supply and while detailing about the scope of supply, it includes
all forms of supply of goods or services or both such as sale, transfer…….made or agreed to be made for a consideration by a person in the course or furtherance of business.
Section 7 includes all forms of supply provided it is made for consideration and in the course or furtherance of business. Both sale and purchase of goods out of stock and sale and purchase of goods as capital asset has been treated as in the course of business as per the definition of business given in section 2(17) of CGST Act, 2017.
Therefore, irrespective of the fact that whether purchase or sale of is goods made out of stock or purchase or sale of goods is made out of capital asset, it would be treated as supply if it’s made for consideration and in the course of business.
Once an event satisfies scope of supply, one cannot segregate such event as supply out of stock in hand or supply as capital asset, it is “supply” under the law unless such distinction is made under the relevant provision.
3. Whether provisions of section 17(5)(a)(i) makes any distinction for Supply of Motor Vehicle out of Stock in Hand or out of Capital Asset
Section 17(5) of CGST Act, 2017 for the same:
Notwithstanding anything contained in sub-section (1) of section 16 and subsection (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….
The key words which have to be read together are as follows:
input tax credit shall not be available in respect..… of motor vehicles …..except when they are used….for making ……taxable supplies, namely….further supply of such vehicles…
At the outset, section only allows claim for ITC when such motor vehicles are used for making further taxable supply of such vehicles. The key word used here is “further supply” which has been used without any further condition of whether or not such supply of motor vehicle is from stock in hand or capital asset. Thus, if section 7 treats sale of capital assets as “supply”, then any motor vehicle sold as capital asset would also be treated as taxable supply on sale of such motor vehicle.
Further, if such would have been the intention that registered person who makes supply of motor vehicle from his stock would only be allowed the credit, then in such case, provisions of section 17(5)(a)(i) would have specifically detailed out that credit would only be allowed on the inputs held in stock just as they have done in section 18 and section 140 for reference.
The provisions of section 17(5)(a)(i) nowhere restricts credit only to motor vehicles sold out of stock in hand. The section only provides that input tax credit of motor vehicle would be available when they are used for making taxable supplies namely further supply of such vehicles. Thus, attaching any other condition linked with usage of the product or supply of vehicle out of stock in hand would be adding language to the law, which has not been provided in the law.
Therefore, when law has treated both sale of motor vehicle out of stock in hand or out of capital asset as supply and section 17(5)(a)(i) also does not makes any specific exclusion out of the two, then in such case, input tax credit on motor vehicle whether capitalized or not should be allowed.