The Central Board of Indirect Taxes and Customs (CBIC) on September 10, 2024, issued clarifications on the availability of input tax credits in respect of demo vehicles.
The following has been stated: -
•The demo vehicles are the vehicles that the authorized dealers for the sale of motor vehicles are required to maintain at their sales outlet as per dealership norms and are used for providing a trial run and for demonstrating features of the vehicle to the potential buyers.
•These vehicles are purchased by the authorized dealers from the vehicle manufacturers against tax invoices and are typically reflected as capital assets in the books of account of the authorized dealers. As per dealership norms, these vehicles may be required to be held by the authorized dealers as demo vehicles for a certain mandatory period and may, thereafter, be sold by the dealer at a written down value and applicable tax is payable then.
•Availability of input tax credit on demo vehicles, which are motor vehicles for transportation of passengers having approved seating capacity of not more than 13 persons (including the driver), in terms of clause(a) of section 17(5) of CGST Act.
•The demo vehicles are used by authorized dealers to provide trial runs and to demonstrate features of the vehicle to potential buyers, it is quite apparent that demo vehicles cannot be said to be used by the authorized dealer for providing a taxable supply of transportation of passengers or imparting training on driving such motor vehicles.
The detailed circular is given in the document below.
[Circular No. 231/25/2024-GST]
