Did the AAR allow ITC on such motor vehicles?

No. ITC was denied under Section 17(5) because the applicant was not making a further supply of motor vehicles and was paying GST at 5% without ITC.

Does supplying to an SEZ change the ITC result?

No. Zero-rating does not override Section 17(5) restrictions. ITC remained blocked in this fact pattern.

What does ‘further supply’ mean here?

It refers to onward supply of the motor vehicles themselves. Mere renting/leasing service did not satisfy that condition in this ruling.

Is passenger transport use enough for ITC?

Not by itself. The ruling treated the applicant’s service as renting/leasing—not direct passenger transport under the carve-outs.

In re New Pandian Travels Private Limited

Q: What was the main question before the AAR?

Whether ITC is available on motor cars (≤13 seats incl. driver) used for renting/leasing, and for services to SEZ under LUT.

In re New Pandian Travels Private Limited (TN/43/ARA/2021)

Can a rent-a-cab operator claim ITC on cars (≤13 seats) used for renting/leasing/hiring, including services to SEZ under LUT?

TN AAR 2021 TN/43/ARA/2021 GST / ITC ~7 min

Author: Gulzar Hashmi • India • Published: 2 Nov 2025

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Quick Summary

Bottom line: The AAR held that ITC is blocked on motor cars (≤13 seats incl. driver) used for renting/leasing/hiring services, even if some trips are for SEZ under LUT. Section 17(5) applies unless there is further supply of motor vehicles or a qualifying carve-out.

No ITC under 17(5)(a)(A)/(B) on facts.
Paying 5% on forward charge restricts ITC.
SEZ zero-rating does not override 17(5) block.

Issues

Is ITC available on motor cars (≤13 seats) used for renting/leasing/hiring to customers?
Does registration as public vehicles for passenger transport change the ITC result?
For services to SEZ under LUT (no IGST), is ITC allowed on vehicles used commonly for SEZ and non-SEZ supplies?

Rules

Section 17(5)(a)(A)

ITC on motor vehicles (≤13 seats) is allowed only when there is further supply of such vehicles (i.e., onward sale/supply of the cars themselves).

Section 17(5)(a)(B)

ITC may be allowed when vehicles are used for transport of passengers under the carve-out. The ruling viewed the applicant’s activity as renting/leasing service, not direct passenger transport.

Rate Option (5% FCM)

Opting to pay 5% GST on forward charge for renting motor vehicles comes with ITC restrictions on inputs and input services.

SEZ & Zero-Rating

Supplying to SEZ is zero-rated, but zero-rating does not neutralize the Section 17(5) block where conditions for ITC are not met.

Facts — Timeline

Timeline graphic: rent-a-cab operations and GST ITC

Applicant runs a rent-a-cab service across multiple cities, registered under GST.

Uses motor vehicles of ≤13 seats (incl. driver) for renting/leasing/hiring to organizations and passengers.

Opted for 5% GST on forward charge; claimed selective ITC and reversed for exempt components.

Also provided services to SEZ under LUT without IGST and sought ITC on commonly used vehicles.

Arguments

Applicant

Vehicles are for passenger transport; hence ITC should be allowed.
Services to SEZ are zero-rated; ITC should not be blocked.
Public vehicle registration shows transport, not mere renting.

Department

Applicant provides renting/leasing, not direct passenger transport.
No further supply of motor vehicles; 17(5)(a) blocks ITC.
Choosing 5% FCM itself restricts ITC on inputs.

Judgment

Held: ITC on the motor vehicles was not available under Section 17(5)(a)(A)/(B). Opting for 5% on renting motor vehicles confirmed ITC restriction. Supplies to SEZ under LUT remained zero-rated but did not lift the Section 17(5) block.

Therefore, the applicant was ineligible to claim ITC on the cars used in the renting/leasing service.

Ratio Decidendi

ITC on cars (≤13 seats) requires further supply of vehicles or a specific carve-out; renting/leasing did not qualify.
5% forward charge option restricts ITC on inputs/services by design.
SEZ zero-rating does not neutralize Section 17(5) restrictions.

Why It Matters

Transport and staffing companies often use small-capacity cars. This ruling signals that ITC planning must consider rate choice, contract model, and use case, especially where fleets serve both SEZ and non-SEZ clients.

Key Takeaways

Renting/leasing cars (≤13 seats) at 5% generally means no ITC on the vehicles.
SEZ supplies under LUT do not unlock blocked credit under 17(5).
To access ITC, structure as further supply of vehicles or fall within a valid carve-out.

Mnemonic + 3-Step Hook

Mnemonic: “Five-Percent, Credit Spent.”

Check Model: Renting/leasing vs further supply of vehicles.
Check Rate: 5% option usually blocks ITC on inputs.
Check SEZ: Zero-rating ≠ override of 17(5).

IRAC Outline

Issue	Availability of ITC on cars used for renting/leasing (≤13 seats), including for SEZ services.
Rule	Section 17(5) blocks ITC unless conditions (e.g., further supply of vehicles or specific transport carve-outs) are satisfied.
Application	Applicant offered renting/leasing; opted for 5%; no further supply of vehicles; SEZ does not lift the block.
Conclusion	ITC ineligible on vehicles; restriction stands even for SEZ supplies under LUT.

Glossary

Further Supply: Onward supply of the vehicle itself, not mere renting/leasing of its use.
Zero-Rated Supply: Exports/SEZ supplies with entitlement to refunds subject to law; does not override all ITC blocks.
Rent-a-Cab: Service of renting/leasing motor vehicles to customers, often at concessional GST rates with ITC limits.