Section 17 of the Central Goods and Service Tax (CGST) Act deals with Apportionment of credit and blocked credits, wherein Clause (5) of the said Section provides for restriction of credit. It is pertinent to note that section 17(5) of the Act start with 'Notwithstanding anything contained in sub section (1) of section 16 and sub- section (1) of section 18, therefore, even if any goods or services used for business purpose but the same is covered under section 17(5) of the Act, then the credit would not be available.
Let's deliberate on the provisions relating to motor vehicle.
Section 17(5)(a) of the CGST Act restricts the input tax credit in respect of motor vehicle except used for further supply of such vehicle, transportation of passenger, training or transportation of goods.
The term 'Motor Vehicle' has the same meaning as defined under the Motor Vehicle Act, 1988 "motor vehicle" or "vehicle" means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty-five cubic centimetres
In other words, motor vehicle include vehicle having more than four wheels but does not include vehicle used in factory or closed premises. 2 wheelers or 3 wheeler are not covered within definition and accordingly if 2 wheelers or 3 wheelers used for the business purpose input tax credit would be available.
Therefore, the consequential question arise about input tax credit in respect of taxes paid on repair, insurance, tyres etc. As per provisions of the input tax credit, the input tax credit in respect of Motor Vehicle is not available.
Dictionary meaning of phrase 'in respect of' is: as regards; with reference to.
Apex Court incase of Union of India vs. Vijay Chand Jain (AIR 1977 SC 1302), held that term in respect of has wide connotation:
The words "in respect of" admit of a wide connotation; Lord Geene Ml, in Canard's Trustees v. Inland Revenue Commissioners 174 L.T. Rep. 133 calls them colourless words. This Court in S. S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. And Anr. construing these words in Section 3(14) of the Indian Railways Act, 1890 has held that they are very wide. It seems to us that in the context of Section 23(1B) 'in respect of' has been used in the sense of being 'connected with'.
Also, in case of S. S. Light Railway Co., Ltd vs. Upper Doab Sugar Mills Ltd.
We are therefore of opinion that the words "in respect of "used in s. 3(14) means " for the provision of " and not " for the user of ".
Accordingly, as the phrase 'in respect of' has wide meaning, any input tax paid on repair, insurance etc would fall within gambit of in respect of motor vehicle and accordingly credit would not be available.
Now, let discuss availability of credit on GST paid on cab services:
As per section 17(5)(b)(iii): Supply of goods or services or both -rent a cab would not be available as credit. It is essential to refer definition of cab as defined under the Motor Vehicle Act, 1988 as GST Act has defined the same -
"Motorcab" means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward.
"Maxicab" means any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver, for hire or reward.
Interestingly, vehicle having capacity more than 12 passengers is not covered under motor cab nor maxi cab. Hence buses having carrying capacity more than 12 passengers would be outside the purview of rent-a-cab.
Further, the services provided by bus operators are not in respect of motor vehicle and the same could be regarded transportation of passenger services. Further, if the said services are treated motor vehicle then there was no need to provide rent-a-cab as a separately.
Now, let us discuss the availability of input tax credit in respect to car taken on lease.
When car is taken on lease it would become services specifically leasing services. Therefore, it would be arguable that it is leasing service and not motor vehicle services and hence credit should be eligible. Yet, this needs to be tested in the court of law on availability of credit.
However, section 17(5) state that input tax credit in respect of motor vehicle is not available. Further, input tax means tax paid on goods or services. It does not distinguish between goods and services. Even though in case car taken on lease it become leasing services but it is leasing of motor vehicle service. Further more, rate to leasing service would be at par with rate applicable to goods. Considering the above credit would not be available.
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