Is ITC available on demo cars bought by dealers?

Yes. The AAR held that vehicles bought for demonstration form part of the sales process, so ITC is available.

Why are demo vehicles treated as used for business?

They help promote and close sales. This direct business link satisfies the ‘in the course or furtherance of business’ test.

Does the ruling mean all motor vehicle ITC is allowed?

No. It applies to vehicles used as demo units for sale promotion by registered dealers, subject to GST rules.

Which authority decided this matter?

The Authority for Advance Ruling (AAR), Goa, in 2019.

What should dealers document?

Purchase invoices, demo assignment records, test-drive logs, and eventual sale/valuation treatment for the demo vehicle.

Re: Chowgule Industries Ltd 2019

Quick Summary

AAR Goa held that input tax credit (ITC) is available on motor vehicles purchased as demo cars. Demo cars directly support sales. They are used “in the course or furtherance of business”, so the dealer can claim ITC.

CASE_TITLE: Re: Chowgule Industries Ltd (2019, AAR Goa) | PUBLISH_DATE: 2 Nov 2025 | AUTHOR_NAME: Gulzar Hashmi | LOCATION: India

Issues

Can a dealer claim ITC on motor vehicles bought and used as demo units?

Rules

ITC Principle: Credit is allowed on inputs used in the course or furtherance of business, subject to exclusions.
Demo Vehicles: When their purpose is to promote and sell vehicles, they are part of the sales process.

Facts (Timeline)

Auto Dealer

Timeline of AAR Goa ruling for demo cars ITC

Business: Chowgule Industries Ltd sells motor vehicles.

Purchases: Vehicles bought from registered dealers.

Use: Vehicles deployed as demo cars to promote sales.

Claim: ITC claimed on demo vehicles.

Dispute: Tax authorities denied ITC alleging non-business use.

Ruling Sought: Application before AAR Goa.

Arguments

Applicant (Dealer)

Demo cars are essential to convince customers and close sales.
They are used strictly for business; hence ITC should be allowed.

Revenue

Demo cars are not directly sold; ITC should be blocked.
Use is not “for business” within the ITC framework.

Judgment

ITC Allowed

The AAR Goa held that demo vehicles support marketing and sales. They are used in business, so ITC is available on their purchase, subject to compliance.

Demo cars are a recognized sales tool.
Their cost is linked to revenue generation.

Ratio

If a motor vehicle is purchased and used as a demo unit to promote sales, it is used in the course of business. Therefore, ITC on such vehicles is admissible.

Why It Matters

Offers clarity to auto dealers on ITC eligibility for demo cars.
Reduces cost of doing business when documented properly.
Promotes consistent GST treatment for sales-promotion assets.

Key Takeaways

Demo cars = business use ⇒ ITC eligible.
Keep tight records: assignment, test drives, eventual sale.
Apply GST rules on valuation if demo unit is later sold.

Mnemonic + 3-Step Hook

Mnemonic: “DEMO → DEAL → DEDUCT”

DEMO: Car used to show and test.
DEAL: Leads to sales conversion.
DEDUCT: ITC claim is allowed.

IRAC Outline

Issue

Is ITC available on motor vehicles purchased as demo cars?

Rule

Inputs used in the course/furtherance of business qualify for ITC, subject to specific exclusions.

Application

Demo cars directly support marketing and sales—clear business nexus.

Conclusion

ITC allowed on demo vehicles, per AAR Goa (2019).

Glossary

ITC: Input Tax Credit—credit for GST paid on purchases used for business.
Demo Car: Vehicle used by a dealer to demonstrate features and enable test drives.
AAR: Authority for Advance Ruling—gives clarity on GST questions for applicants.