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CMA Intermediate · Direct and Indirect Taxation · Input Tax Credit

Sharma Motors Pvt Ltd, a manufacturer of taxable goods, buys a sedan with seating capacity for five persons including the driver for use by its directors. The IGST/CGST/SGST paid is Rs 1,60,000. The sedan is not used for further supply, passenger transport or driving training. What input tax credit is available on the sedan?

The credit is nil. A motor vehicle carrying not more than thirteen persons including the driver is blocked under section 17(5)(a) unless used for further supply, passenger transport or driving training. A sedan for directors meets none of those exceptions, so no input tax credit can be taken.

  1. ARs 1,60,000, since it is used in the course of business
  2. BRs 80,000, being 50% of the tax
  3. CNil, since credit on such motor vehicles is blockedCorrect
  4. DRs 1,60,000 spread equally over five years

Explanation

Under section 17(5)(a), credit is not available on motor vehicles for transporting persons with approved seating capacity of not more than thirteen including the driver, unless used for further supply, passenger transport or driving training. A five-seat sedan used by directors fits none of these exceptions, so credit is nil. Part credit or phased credit has no basis in the provision.

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