GST Caselaw

#GSTCase-92-Allowability of ITC on renting of Vehicles-Section 17(5) of CGST Act, 2017-Precarious case of Opposite Judgements by AAR Madhya-Pradesh and AAR/AAAR-West Bengal

#GSTCase-92-Allowability of ITC on renting of Vehicles-Section 17(5) of CGST Act, 2017-Precarious case of Opposite Judgements by AAR Madhya-Pradesh and AAR/AAAR-West Bengal

 

Cases Covered-

Narsingh Transport, [2019] 104 taxmann.com 86 (AAR – MADHYA PRADESH)

Mohana Ghosh [2019] 106 taxmann.com 108 (AAR-WEST BENGAL)

Mohana Ghosh [2019 106 taxmann.com 380 (AAAR-WEST BENGAL)

 

  1. Query

Whether GST paid on cars provided to their different customers on lease rent will be available as Input Tax Credit (ITC) in terms of Section 17(5) of Central Goods and Service Tax Act, 2017.

 

  1. Facts:

The Applicant had purchased cars and the same have been provided to various Companies on lease rent under a lease agreement. The applicant has expressly purchased such cars for furtherance of their business i.e. for providing to other entities on a monthly lease rent under proper lease agreement.

 

  1. Observation by AAR

A plain reading of Sections Section 17(5)(a) after the amendment and Section 175(a)(i) and (ii) before amendment make it absolutely clear that in respect of motor vehicles, except in certain circumstances, the Input Tax Credit is not available. The relevant Extract of the Section is as follows:

 

After CGST Act amendment 2018 —

(a) motor vehicle for transportation of person having approved seating capacity of not more then thirteen person(including the driver), except when they are used for making the following taxable supplies, namely:—

(A)           further supply of such motor vehicles; or

 

Before CGST Amendment Act, 2018

(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

Section 17(5)(a)(A) and Section 17(5)(a)(i)(A) reads as “for making following taxable supplies namely” and sub section 17(5)(a)(A) before amendment reads as “further supply of such motor vehicles” and Sub-section Section 17(5)(a)(i)(A) after the amendment reads as “further supply of such vehicles or conveyances. The words “taxable supply” & “further supply” finding a place in the said sub-sections are of great importance.

The term ‘Supply’ as per Section 7 of CGST Act, 2017 is of wide import and includes all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to the made for a consideration by a person in the course or furtherance of business. Similarly, a “taxable supply” means a supply of goods and/or services which is chargeable to goods and service Tax under the GST Act.

Applying the principals laid down by the law, as highlighted above, to the facts of the instant case as also reflecting in the Lease Agreement entered between the Applicant and its customer, we find that –

(i)           Applicant is supplying goods i.e. cars and services i.e. lease rent services,

(ii)         the supplies are against a monthly monetary consideration

(iii)        the supplies are in the course of applicant’s business

(iv)      the supplies are effected in taxable territory

(v)        supplies are taxable in nature and

(vi)      Applicant is registered under GST Act

Thus, activities carried out by the applicant are in the nature of “taxable Supply”. The above-mentioned sub section mentions about making of “further supply” of such vehicles or conveyance and hence deciding factor would be the term “further supply”. The term “further supply” has not been defined in the Act, therefore one has to go by definition of “supply” which is the very plinth of GST law. The term ‘further’ prefixed to ‘supply’ is merely in the form of adverb and does not differentiate it from ‘Supply” by any stretch of imagination.

In light of the facts as discussed in detail in previous paras, activities carried by applicant regarding supply of tax paid motor vehicles on monthly lease rent plus Goods & Service Tax as applicable to their customer under a proper agreement properly satisfies conditions laid down under Section 17(5) (a)(i)(A) before the amendment and under sub-section Section 17(5)(a)(A) after amendment to make it eligible for availment of input tax credit on motor vehicle for Tax paid by it while acquiring said vehicles.

It was also mentioned by AAR that cars, which applicant intends to lease, or has already leased, should be registered with the transport authority in the capacity of commercial use. In case the vehicle is owned and used by the Applicant for his own use, the facility of ITC shall seize to be available to them.

 

  1. Held

Applicant is entitled to avail ITC on cars (passenger vehicles) which are further supplied to customers on lease rent, subject to condition applicable in such supply of services as per notification number 11/2017-Central Tax (Rate) Dated 28.06.17 as amended from time to time and corresponding notifications issued under MPGST Act. At the termination of lease agreement/contract, if the vehicle is not further leased to same or other customer, the applicant shall be liable to reverse the ITC so availed as per law. Such vehicles should abide by the norms and regulations of The Motor Vehicle Act. in accordance to be registered for commercial use with the Transport authority and not put to own use by the Applicant.

 

  1. Comment

The judgement is in stark contrast to Judgement of West Bengal AAR in the matter of Mohana Ghosh [2019] 106 taxmann.com 108 (AAR-WEST BENGAL) dated 10th June 2019 which provided that Provisions of Section 17(5) restrict ITC in case of renting of Cars.

Further AAAR-West Bengal in the same matter has upheld the view taken by AAR. However, AAAR rectified the Judgement of AAR vide their order dated 25th June 2019 (106 taxmann.com 380) citing following reasons:

The advance ruling in this matter was pronounced on 10/06/2019. The order, however, suffers from certain legal errors that are apparent on the face of the record. They need to be rectified. This Authority, therefore, proceeds to amend the said order on its own accord under section 102 of the GST Act. As the rectification is not going to enhance the tax liability or reducing the amount of admissible input tax credit from the original order, the requirement under proviso to section 102 of the GST Act does not apply.

Therefore, West Bengal AAAR has upheld the view of West Bengal AAR that provisions of Section 17(5) restrict ITC in case of renting of Cars. This view is opposite to the view of Madhya-Pradesh AAR which has provided that Renting of Cars fall under further supply and is not hit by the provisions of Section 17(5).

The situation is getting precarious as AAR/AAAR are giving differing judgements on same issues and they are not distinguishing previous Judgements of other AAR/AAAR. At present till GST Tribunals are not in force, these judgements are the only published judgements in GST Regime and clarify the doubts and legal provisions under GST Law. However, such differing judgements on similar point without distinguishing earlier judgements of other AAR/AAAR leaves taxpayer across the country in chaos and unclear about what to do. If Legal authorities i.e. AAR/AAAR are themselves not clear then to expect Taxpayers to apply correct tax might be asking too much from them.

Each AAR/AAAR might consider themselves as separate legal body and not connected with other AAR/AAAR of other States but fact of the matter still remains, they are part of GST Law which is built upon the concept of “One Nation One Tax”. They must act according to best legal practices and may give differing judgements to other AAR/AAAR but at least give their view that why they have deviated from the previous judgement of other AAR/AAAR.

Further, motor vehicles or conveyance used for making taxable supply i.e. further supply of such vehicle or conveyance would not only include circumstances wherein they are being sold to other person but would also include motor vehicles or conveyance which are being supplied on rent. The words used are supplied, whether motor vehicle is supplied as a sale or on rent is immaterial. Provision of section has not linked the supply with transfer of ownership. Providing motor vehicle on rent has been also been classified as supply under the law. Therefore, Input Tax Credit in respect of supplying motor vehicles on rent would also be covered under this provision along with the person selling the motor vehicles.

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