Used Car Dealers Can Claim ITC On Repairs, Rent and Capital Goods Under GST Margin Scheme: Kerala AAR

The Kerala Authority for Advance Ruling (AAR) has held that dealers trading in second-hand motor vehicles under the GST margin scheme can claim Input Tax Credit (ITC) on inward supplies used in the course of business, except on the purchase of used vehicles.

The ruling was delivered by IRS Jomy Jacob, Member (CGST), and Mansur M.I., Member (SGST), on an application filed by Goexotic Plus91 Motors Private Limited, a GST-registered dealer in old and used luxury vehicles.

The applicant purchases used vehicles from registered and unregistered persons. It carries out minor repairs and refurbishment to improve resale value without changing the vehicles' essential character. These activities include replacement of spare parts.

The dealer also incurs expenses such as repairs, spare parts, showroom rent, advertising, telephone charges, and professional fees. It purchases capital goods, including workshop machinery and office infrastructure. GST is paid only on the margin between the purchase price and sale price. No ITC is claimed on the purchase of the vehicles.

The issue before the AAR was whether ITC on such inward supplies is barred because the outward supply is taxed under the margin scheme prescribed under a 2018 Central Tax (Rate) Notification, read with Rule 32(5) of the CGST Rules.

The AAR held that the notification restricts ITC only on the purchase of used motor vehicles. It does not bar credit on repairs, refurbishment services, or spare parts.

The authority further held that ITC on showroom or office rent, advertising, telephone services, professional fees and capital goods is admissible. Such credit is subject to compliance with Sections 16 to 21 of the CGST Act and the applicable rules.

The AAR concluded that supplies under the margin scheme remain taxable supplies. Dealers are not required to reverse ITC on common business inputs or capital goods, except in relation to the purchase of used vehicles.