QUESTION
A firm purchased a car for the use of its employees in the factory. Whether the firm can use ITC on purchase of car or not ?
ANSWER
Facts of the case:
Car was purchased for the use of employees in a factory. To determine whether ITC on the car would be eligible.
Law Applicable:
As per section 17(5) CGST, the ITC on the
following shall be blocked;
(a) motor vehicles for transportation of persons having approved seating
capacity of not more than thirteen persons (including the driver), except when
they are used for making the following taxable supplies, namely:-
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
Interpretation:
As per the above mentioned law, the ITC on motor
car in your case can be availed only if;
1. Either the car has a seating capacity of more than 13 persons (including the
driver), or
2. Car (of capacity less than 13 persons) is used to make a taxable supply of
transport of passengers.
Therefore if the car has a seating capacity of
more than 13 persons, the ITC on it can be claimed.
Assuming that the car has a seating capacity of less than 13 persons, the ITC
can be claimed only if an invoice is drawn in the name of employees who are
being transported and the tax on this outward supply is paid.
Conclusion:
If the seating capacity of the car is more than 13 persons then the ITC can be claimed. Otherwise, ITC can be claimed only if tax is paid on the outward supply of transport of passengers given to the employees. (Reply dt. 21/02/2022)