Source: http://mustafaco.com/all-about-itc-on-expenses-related-to-motor-vehicle/
Timestamp: 2019-04-21 09:08:09+00:00

Document:
1. Many view the changed world with the same old lenses. This results in a distorted view of the new reality. Same holds good while interpreting the provisions of GST law.
3. Hence in the pre-GST era CENVAT credit in respect of expenses incurred in relation to a motor car used by let us say Director of the Company for the purpose of business was not admissible. Whether the same position will continue or not in the GST era ? Let us analyze.
5. We are assuming that the motor vehicle in respect of which expenses have been incurred is not covered by any of the exclusions. This is because if the motor vehicle is covered by any of the exclusions (e.g. used for transportation of goods) and hence input tax credit in respect of such motor vehicle is admissible, there is no question of non-admissibility of input tax credit in respect of expenses related to such vehicle. Hence we shall be discussing the case where motor vehicle (e.g. car used by Director) is not admissible for input tax credit and expenses like insurance or repairs and maintenance have been incurred on such vehicle. Whether input tax credit of GST charged on such expenses can be claimed ?
6. Close reading of Sec. 17(5)(a) of the CGST Act, 2017 suggests that input tax credit “in respect of” motor vehicle is barred. Whether the phrase “in respect of” will also include expenses related to such motor vehicle ?
7. In context of laws other than taxation the phrase “in respect of” has been given widest meaning. As an example, Apex Court in the case of Union of India v. Vijay Chand Jain  AIR 1302 (SC) has held that the words “in respect of” admit of a wide connotation and means “being connected with”. Similarly in the case of Tularam Relumlal v. State of Bombay  AIR 496 (SC), Apex Court held that the words “in respect of” in their widest meaning means “relating to” or “with reference to”. Whether the same wide meaning will be attributable to the phrase appearing u/s 17(5)(a) ?
(i) the excise duty, if any, paid by the dealer to the Central Government in respect of the goods sold by him.
9. Question before the Hon. Supreme Court was whether the words ‘in respect of goods sold’ shall include the raw material used in manufacture of goods sold by the dealer. It was argued by the respondent that the words ‘in respect of’ meant ‘attributable’ and, therefore, the argument proceeded that the excise duty paid on the raw tobacco though it was not paid on the goods sold by the respondent was attributable to the said goods sold. Numerous English decisions were also cited to argue that the words ‘in respect of’ should be read widely. Reference was made to the decision of the House of Lords in the case of Inland Revenue Commissioners v. Courts & Co. in the context of payment of estate duty wherein the words ‘in respect of’ appearing in S. 5(2) of the Finance Act, 1894 (57 & 58 Vict. c. 30) was construed as implying some imprecise kind of nexus between the property and the estate duty. Another decision of the House of Lords in Asher v. Seaford Court Estates Ltd. was also referred wherein while construing the provisions of S. 2(3) of Increase of Rent and Mortgage Interest (Restrictions) Act, 1920 it was held that the expression ‘in respect of’ must be read as equivalent to ‘attributable to’. It was also submitted that the Privy Council in the case of Bicber Ltd. v. Commissioner of Income-tax  3 All ER 294 observed that the said words ‘in respect of’ could mean more than ‘consisting of’ or ‘namely’.
“6. Learned counsel for the respondent cited some English decisions in support of his contention that the expression “in respect of the goods” was very wide and that it took in the raw material out of which the goods were made.
7. The House of Lords in Inland Revenue Commissioners v. Coutts & Co.,2 in the context of payment of estate duty, construed the words “in respect of in section 5(2) of the finance act, 1894 (57 & 58 vict, c. 30) and observed that the phrase denoted some imprecise kind of nexus between the property and the estate duty. The House of Lord in Asher v. Seaford Court Estates Ltd. LR 1950 AC 608 in construing the provisions of section 2, sub-section (3) of increase of rent and mortgage interest (restrictions) act, 1920 (10 & 11 geo. 5, c. 17), held that the expression “in respect of” must be read as equivalent to “attributable”. The Privy Council in Bicher Ltd. v. CIT 1962 3 All ER 294 observed that the said words could mean more than “consisting of” or “namely”.
8. It is not necessary to refer to other decisions. It may be accepted that the said expression received a wide interpretation, having regard to the object of the provisions and the setting in which the said words appeared. On the other hand, Indian tax laws use the expression “in respect of” as synonymous with the expression “on”: see article 288 of the constitution of India; section 3 of the Indian income tax act, 1922; sections 3(2) and 3(5), second proviso, of the madras general sales tax act, 1939; section 3(1-a) of the central excise and salt act, 1944; and section 9 of the Kerala sales tax act. We should not be understood to have construed the said provisions, but only have referred to them to state the legislative practice. Consistent with the said practice, rule 5(l)(i) of the rules uses the same expression. When the said Rule says “excise duty paid in respect of the goods”, the excise duty referred to is the excise duty paid under Section 3(1), read with the Schedule, of the Central Excises and Salt Act, 1944 (1 of 1944). Under the said section, read with the Schedule, excise duty is levied on the goods described in the Schedule. Therefore, when rule 5(1)(i) of the rules refers to the duty paid in respect of the goods to the Central Government, it necessarily refers to the duty paid on the goods mentioned in the Schedule. As the duty exempted from the gross turnover is the duty so paid under the Central Act, read with the Schedule, the expression “in respect of” in the context can only mean excise duty paid on goods. In our view, the expression “in respect of the goods” in rule 5(1)(i) of the rules means only “on the goods”.
11. Apex Court thus observed that the phrase “in respect of” although of a wide import has been used in the context of tax laws in India as synonymous with the expression “on”. Hence wide meaning cannot be accorded to the said phrase and has to be understood in a limited sense for the word “on”. Whether the same reasoning will hold good under GST ?
Sec. 9(4): The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Explanation to Sec. 11: For the purposes of this section, where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both.
Sec. 16(4): A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
13. As one can observe from the above referred provisions that the phrase “in respect of” even under CGST Act, 2017 has been used as an alternative for the expression “on”. This is a common feature of drafting of Indian taxation laws. Hence the ratio of the Supreme Court decision will squarely apply while interpreting the phrase “in respect of” as appearing u/s 17(5)(a) of the CGST Act, 2017. Same has to be considered synonymous with word “on”.
14. Once we conclude that only input tax credit “on” motor vehicle is debarred we have no hesitation in concluding that input tax credit on expenses relating to motor vehicle will be allowed.

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