AAR issues ruling that authorized car dealers can claim the input tax credit on demo cars

In a recent significant development, the West Bengal bench of the GST Authority for Advance Ruling (AAR) has issued a ruling that allows registered automobile dealers to claim input tax credit (ITC) on cars utilized for demonstration purposes to potential customers, commonly known as demo cars.

The ruling was prompted by an application filed by Landmark Cars East Pvt Ltd, an authorized dealer of Mercedes Benz, seeking clarification on the various taxation considerations surrounding demo cars within the GST framework.

The AAR pronounced that the applicant is fully entitled to claim the input tax credit on the tax amount charged and paid on the acquisition of cars from Mercedes Benz India, which are specifically employed for demonstration purposes and subsequently sold after a specific prescribed time frame.

This ruling effectively answers the query raised regarding the eligibility of the applicant to claim ITC on the inward supply of cars from Mercedes Benz India, which serve as demo vehicles intended for showcasing to prospective customers who express interest in purchasing Mercedes Benz cars.

The ruling by the West Bengal bench of the GST Authority for Advance Ruling represents a significant decision that provides clarity and sets a precedent for the GST treatment of demo cars within the automobile industry. This ruling serves as a guiding light for registered automobile dealers, offering them a clear direction on the process of claiming input tax credit on demo cars utilized for customer demonstration activities.