Auto dealers can claim ITC on demo cars: CBIC

New Delhi: Automobile dealers using demonstration vehicles or demo cars for promoting sales can claim input tax credit (ITC) under the GST law, the CBIC has said. However, no ITC would be available if demo cars are used by dealers for their own purpose during the course of the business. In a circular, the Central Board of Indirect Taxes and Customs (CBIC) said authorised dealers are required to maintain demo vehicles at their sales outlet as per dealership norms which are used for providing trial runs and for demonstrating features of the vehicle to the potential buyers.

These vehicles are purchased by the authorised 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 vehicle for the certain mandatory period and may, thereafter, be sold by the dealer at a written down value and applicable tax is payable at that point of time. "... demo vehicles are used by the authorized dealers to promote further sale of motor vehicles of the similar type and therefore, such vehicles appear to be used in the course or furtherance of the business of the authorized dealers.

Where such vehicles are capitalized in the books of accounts by the authorised dealer, the said vehicle falls in the definition of 'capital goods'," the CBIC said. GST law recognizes that capital goods are used or intended to be used in the course or furtherance of business and hence ITC can be claimed on it subject to other provision of the law, it added.