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As per the negative list of Input Tax Credit, it has been provided that the ITC on following items cannot be availed:
motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—
(i) transportation of passengers, or
(ii) transportation of goods, or
(iii) imparting training on motor driving skills;
This means that any GST paid with respect to any payments made in relation to motor vehicles would not be available as Input Tax Credit. There has been considerable interpretations around this provision. Two views have emerged around this.
One view interprets that there is no restriction on availing ITC on repair/spare parts of motor vehicles. Thus one can avail ITC on repair/spare parts.
But other experts say that since section 17(5) says that credit “in respect of “ motor vehicle is not allowed and this expression will have wider effect and credit on repairs of the vehicle will not be allowed.
Internationally, there is a case for providing credit of GST paid on vehicles used for business purpose. Countries like Australia and Canada allow it, but the EU does not. The proponents of this restriction say there is a thin line differentiating personal use and business use of motor vehicles, as they are not fixed in place like an office air conditioner, on which credit would be available.
However, the office itself is now a concept with fewer physical boundaries: employees are allowed to work from home, from a café, or even from their cars (assuming they have a chauffeur, at least until we see the days of driverless cars). So what holds true for an office laptop or mobile device (on which credit is allowed) could also one day hold true for a car. However, the law still seems to be very nascent at this stage.Clarification would still be required.