GST Input Tax Credit for Second-Hand Vehicle Dealers
Dealers using the GST margin scheme can claim input tax credit on business expenses and capital goods, excluding the vehicles themselves.
- Ruling
- ADVANCE RULING No. KER/42/2025 Dated 11.12.2025
- Dated
- 11 Dec 2025
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Goexotic Plus91 Motors asked if they could claim input tax credit.
- The authority ruled that the margin scheme only restricts credit on vehicle purchases.
- Business expenses and capital goods remain eligible for input tax credit.
- Margin-based sales are classified as taxable supplies, not exempt supplies.
In short
The company asked if they could claim input tax credit (ITC) on business expenses while paying GST only on the profit margin of used cars. The tax authority clarified that the restriction on claiming credit applies only to the purchase price of the used vehicles. This means other business costs, like repairs or office equipment, are still eligible for credit.
What has changed
How it worked before
Many dealers were unsure if using the margin scheme meant they had to give up all input tax credits, or if they had to reverse credits for common business expenses.
What has changed
The authority confirmed that margin-based sales are taxable supplies. Because they are not exempt, dealers do not need to reverse input tax credits for common business expenses or capital goods under standard rules.
Who this affects
Businesses that buy and sell second-hand motor vehicles and pay GST on the profit margin.
An example
Imagine a dealer who buys a used car for 5 lakhs and sells it for 6 lakhs, paying GST only on the 1 lakh margin. They also spend 20,000 on spare parts and buy a new computer for their office. This ruling suggests they can claim the GST paid on the spare parts and the computer, even though they used the margin scheme for the car sale.
What you should do
This ruling only applies to the company that asked for it. If you are a dealer, you should consult your tax advisor to see if your specific expenses qualify under Section 16 of the GST Act.
If you do nothing
If you assume this ruling applies to you and claim credits you are not entitled to, you risk a tax audit. A tax officer may demand repayment of the credit plus interest and penalties. Relying on another company's ruling does not protect you from these consequences.
The terms explained
- Input Tax Credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its sales.
- Margin Scheme
- A method where GST is paid only on the difference between the selling price and the purchase price of a second-hand good.
- Capital Goods
- Long-term assets like machinery, computers, or vehicles used to run a business, rather than items bought for resale.
The ruling in detail
Authority for Advance Ruling
M/s GOEXOTIC PLUS91 MOTORS PRIVATE LIMITED
ADVANCE RULING No. KER/42/2025 Dated 11.12.2025 · Keralam
Questions before the authority
- Admissibility of Input Tax Credit (ITC) on Direct Expenditures for Second-Hand Vehicles.
- Admissibility of Input Tax Credit (ITC) on Other Common Business Expenses and Capital Goods.
Facts
The applicant is engaged in the business of buying and selling second-hand motor vehicles, primarily luxury cars. They adopt the special valuation mechanism under Rule 32(5) of the CGST Rules, 2017, which allows payment of GST on the margin. The applicant incurs various common business expenses and procures capital goods for their operations.
Ruling
| Question | What the authority ruled |
|---|---|
| ITC on direct expenditures (repairs, spares, etc.) | Admissible Subject to compliance with conditions under Sections 16 to 21 of the CGST Act and Rules 36 to 45. |
| ITC on common business expenses and capital goods | Admissible No restriction under Notification No. 8/2018-CT (Rate) or Rule 32(5) for these expenses. |
The Authority ruled that the restriction on claiming ITC under the Margin Scheme applies solely to the purchase of the used motor vehicles themselves. Consequently, the applicant is eligible to claim ITC on other inward supplies, including direct expenditures like repairs and spare parts, as well as common business expenses and capital goods, subject to standard compliance requirements.
Reasoning
The Authority reasoned that Notification No. 8/2018-Central Tax (Rate) and Rule 32(5) of the CGST Rules, 2017, only restrict ITC on the purchase of the used vehicles themselves. It further clarified that sales under the Margin Scheme are taxable supplies with a taxable value of zero, rather than exempt supplies, meaning they do not trigger the reversal of common ITC under Rule 42 or Rule 43. The ruling relies on Section 16(1) of the CGST Act, which permits ITC on inward supplies used in the course or furtherance of business.
Provisions relied on
- Section 16(1) of the CGST Act, 2017
- Section 17(5) of the CGST Act, 2017
- Rule 32(5) of the CGST Rules, 2017
- Rule 42 of the CGST Rules, 2017
- Rule 43 of the CGST Rules, 2017
- Notification No. 8/2018-Central Tax (Rate) dated 25.01.2018
For the practitioner
This ruling provides **significant relief** to dealers operating under the Margin Scheme by confirming that they can claim ITC on all business inputs and capital goods, excluding the vehicles themselves. It settles the debate regarding the classification of margin-based sales, confirming they are **taxable supplies** rather than exempt, thus avoiding ITC reversal. Practitioners should note that this eligibility remains strictly subject to the general conditions of Section 16 of the CGST Act.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/goexotic_plus91_motors_private_limited.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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