An interesting question is asked by almost all whether ITC is available on purchase of two wheeler & four wheeler? GST is a seamless flow of credit and so taxpayer think that the GST paid on purchase of vehicle can be utilized for set off.

First, one need to read section 17(5) of CGST Act.

Under Section 17(5) of CGST Act Input tax credit shall not be available in respect of the following, namely:

Motor vehicles and other conveyances except when they are used–

(i) For making the following taxable supplies, namely,

(A) Further supply of such vehicles or conveyances; or

(B) Transportation of passengers; or

(C) Imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) For transportation of goods

It means that if the if the vehicle is not used for

(A) Further supply of such vehicles or conveyances; or

(B) Transportation of passengers; or

(C) Imparting training on driving, flying, navigating such vehicles or conveyances;

then set off will not be available.

Interesting point here is that the above section places restrictions on ITC set off of “vehicle”. Another question arises, whether two wheeler can be treated as “motor vehicle” or not?

“Vehicle” definition is also given in CGST Act. Under Section 2(76) of CGST Act, “motor vehicle” shall have the same meaning as assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988.

Under the Motor Vehicles Act, 1988, as per clause (28) of section 2,

“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 twenty-five cubic centimeters

Cubic centimeters has been explained to mean CC engine capacity,

It is for sure that the two wheeler and four wheeler are going to have capacity more than mentioned above and so ITC on motor vehicle will be not eligible as per section 17(5) CGST ACT if not used for (i) & (ii) above. To add further, GST Amendment Act 2018 as applicable from 01.02.2019 has specifically blocked ITC u/s 17(5) for Motor vehicles in  transportation of persons with approved seating capacity of not more than 13 persons.

In short, prior to amendment, ITC was prohibited for all motor vehicles and after amendment seating capacity criteria has been introduced in new provision. Two wheeler are sure to be outside the said criteria & hence no ITC would be available in any case.