18% GST Payable On Amount Received From Mercedes Benz India Towards Reimbursement Of “Loss On Sale Of Demo Car”: AAR

The West Bengal Authority of Advance Ruling (AAR) has ruled that 18% GST is payable on the amount received by the applicant from Mercedes-Benz India towards reimbursement of “Loss on Sale of Demo Car.”.

The bench of Tanisha Dutta and Joyjit Banik has observed that the amount received by the applicant from Mercedes-Benz India towards reimbursement of “Loss on Sale of Demo Car” shall be regarded as consideration received against supply of services for “agreeing to tolerate an act.”.

The applicant is an authorized agent of Mercedes-Benz India and is responsible for facilitating the sales of Mercedes-Benz passenger vehicles, including Mercedes-Benz EQ (electric cars). As per the agreement made between the applicant and Mercedes-Benz India Pvt. Ltd., the applicant shall be a member of a network of authorized agents. As a part of this network, the applicant shall function as a self-employed commercial agent with the responsibility of brokering the sales of vehicles on behalf of Mercedes-Benz. The primary objective is to facilitate and support Mercedes-Benz's direct sales to end-customers.

The applicant sought an advance ruling on the issue of whether the applicant is entitled to claim input tax credit charged and paid on the inward supply of cars from Mercedes-Benz India that are used for demonstration purposes by a potential customer interested in buying a Mercedes-Benz car, commonly known as a demo car.

Yet another issue raised was in respect of classification and rate of tax at the time of sale of demo cars and whether the amount received by the applicant from Mercedes-Benz India towards reimbursement of “Loss on Sale of Demo Car” constitutes supply.

The AAR held that the applicant is entitled to claim input tax credit charged and paid on the inward supply of cars that are used for demonstration purposes and supplied further after a specified time period.

The AAR ruled that the vehicle would be classified under Chapter 8702 or 8703, as the case may be, and its outward supply would attract the same rate of tax as its inward supply, subject to the provisions of Section 14 of the GST Act.

Applicant's Name: Landmark Cars East Private Limited

Date: 04/04/2024

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