The Authority for Advance Rulings, Tamil Nadu in the case of M/S. A2MAC1 INDIA PRIVATE LIMITED vide Order No. TN/29/ARA/2024 dated 06.12.2024, ruled that input tax credit on the purchase of motor vehicles used for providing taxable outward supply of Automobile Bench Marking Service’ and supplied as ‘Scrap of Automobiles’ is not available to the applicant as the applicant’s activity would not fall within the exception to the exclusion provided under Section 17 (5) (a) of CGST/TNGST Act, 2017.
Facts of the Case: M/s A2Macl (India) Pvt Ltd i.e. the Applicant is registered in Tamil Nadu and provides automotive benchmarking services via an online subscription platform. The company purchases new vehicles, disassembles them, and adds research data to its knowledge database. The vehicles are used exclusively for automotive research and are temporarily registered with the RTO. After a specific retention period, the vehicles are sold with applicable GST.
Issue: Whether ITC on the purchase of new motor vehicles is admissible under Section 17(5)(a) of the CGST Act, 2017.
Submission of the Applicant: Vehicles are essential business tools for research, and without them, their primary revenue stream would fail. The cost of vehicle purchases is expensed in the books and later sold with GST, which qualifies as “further supply” under Section 17(5)(a)(A). The Applicant placed reliance upon the AAR Rulings, Kerala, Maharashtra, and Madhya Pradesh that allowed ITC for demo vehicles and leased vehicles. Further, it was submitted that Vehicles are not used for transportation of persons, so they should be classified as Plant & Machinery, making ITC claimable.
Department’s submission: ITC is not admissible because the business model only provides knowledge-based services, unlike the cited rulings that involved sales or leasing of vehicles.
Observations and decision of AAR: The Authority for Advance Rulings, Tamil Nadu observed that the applicant does not sell vehicles as a primary business activity like an automobile dealer. The vehicles are used for research and testing, which is not explicitly listed as an exception in Section 17(5)(a). The applicant sells the vehicles after a retention period of 14–20 months. However, instead of selling them as used cars, they are classified as automobile scrap and taxed at 18% GST. Since the vehicles are not sold as “motor vehicles” but as “scrap”, the sale does not qualify as “further supply of motor vehicles” under Section 17(5)(a)(A).
Further, the AAR compared the present case with Demo Vehicle ITC Rulings and observed that the applicant cited rulings on demo vehicles used by car dealers, however, the applicant does not operate as a car dealership and does not resell cars as motor vehicles, so this precedent does not apply.
Also, If the applicant claimed ITC, they could not use the concessional valuation rule under Rule 32(5) of CGST Rules, 2017 i.e. concessional margin scheme for second-hand vehicle sales. Since the vehicles are not being resold as “used cars” but as “scrap”, the claim for ITC was rejected.
Therefore, the AAR concluded that input tax credit on the purchase of motor vehicles used for providing taxable outward supply of Automobile Bench Marking Service’ and supplied as ‘Scrap of Automobiles’ is not available to the applicant as the applicant’s activity would not fall within the exception to the exclusion provided under Section 17 (5) (a) of CGST/TNGST Act, 2017. The ruling correctly applies the ITC restrictions under Section 17(5)(a) based on the applicant’s current business model. If the applicant wants to claim ITC, they may need to change how they classify and sell the vehicles (e.g., as second-hand cars instead of scrap).
