The Goods and Services Tax (GST) is a unified service tax regime that replaced various indirect taxes. The Central and State Governments levy this taxation. There has been ongoing debate about whether GST on car repairs and servicing qualifies for input credit.

Experts have varying opinions on this matter. This comprehensive overview seeks to clarify the GST on car repair services. It aims to assist consumers and authorised service stations to understand the tax implications more clearly.

ITC in Respect of Repairs etc. of Motor Vehicles

Input Tax Credit (ITC) is one of the significant features of GST. ITC permits businesses to claim credit for the paid GST on inputs that have been used in services.

When a repair shop purchases spare parts or lubricants and pays GST, they can claim the paid GST as an input credit. This notably reduces the overall tax liability of the business.

Availability of ITC in respect of repairs etc. of Motor Vehicles-Post 31.01.2019

The GST norms have undergone significant modifications regarding the Input Tax Credit (ITC) for repairs and maintenance charges of vehicles after January 31, 2019. These amendments aim to set clear eligibility criteria for claiming this vehicle-related credit. Taxable persons must focus on the fulfilment of basic conditions for availment of ITC. Personal motor vehicles not directly linked to the business are the ones to which such changes precisely apply.

The CGST Amendment Act 2018 has been revised by including Clause (ab) to Section 17 (5) to restrict the availability of ITC on repairs and maintenance of vehicles. This new clause reflects that ITC on repairs, maintenance and general insurance services of motor vehicle has become unavailable if:

• Utilising for the transportation of persons having personal purposes.
• Having a seating capacity of 13 people including the driver.

For the above-mentioned cases, the Input Tax Credit for the GST paid falls under the category of blocked credit.

Authorised service stations for motor vehicles repairs and servicing can claim ITC when:

• Carry out goods transportation:

Vehicles used for goods supply to consumers, transportation or other business purposes, like trucks and other types of motor vehicles, are eligible for Input Tax Credit for maintenance and services.

• Deliver taxable supplies:

ITC on repair and maintenance services can be claimed for business-operated vehicles. The vehicle must be used primarily for trading activities. The activity can be either of the following:

1. Supply to consumers of further motor vehicles (eg. car dealers).
2. Transportation of passengers (eg. taxi service provider).
3. Offering driving training (eg. driving school).

• Have a capacity of over 13:

Motor vehicles employed for transportation of passengers having an approved seating capacity of more than 13 are subject to GST input credit claims.

• Input services of vehicle repair received by a taxable person:

ITC can be claimed if the motor vehicle repair services are received by a registered person who engages with the below-mentioned conditions:

1. The manufacturing of business-related motor vehicles.
2. Ie supply of general insurance services in respect of motor vehicles by insurance companies.

ITC is available in respect of services of repairs and maintenance. However, businesses must affirm that the vehicles are part of their operational assets.

Furthermore, firms can not claim ITC on non-business-related expenditures. The business holder must also keep in mind that essential goods and services fall under the exempted categories and are not subject to GST, thus ITC for such goods transportation services remain unclaimed.

Please note, under Notification no 9/2023 CT, The government has extended the time limit for issuing orders for the recovery of unpaid or short paid taxes or wrongly availed input tax credit in respect to services of motor vehicles for the following periods:

• For the financial year 2017-18, the deadline is now December 31, 2023.
• For the financial year 2018-19, the deadline is now March 31, 2024.
• For the financial year 2019-20, the deadline is now June 30, 2024.

This extension is made in accordance with the Central Goods and Services Tax Act and the Integrated Goods and Services Tax Act.

Required Documents to Claim ITC for Motor Vehicles Servicing or Repairs

To claim ITC, businesses must maintain the following documentation:

• Invoices: GST-compliant invoices from suppliers that detail the GST paid.
• Receipts: Proof of payment for goods and services.
• Records: Proper records of inputs used in the provision of repair services on motor vehicle.

Standard Goods and Services Tax Rate for Authorised Service Stations for Motor Vehicles Servicing or Repairs

Authorised service stations total GST rates are either 12% or 18% for motor vehicle repairs or servicing.

On the other hand, luxury goods and services attract an additional cess on top of the 28% GST. This rate applies to the following list of services:

• Routine Servicing and Repairs: General maintenance, cleaning services and minor repairs of motor vehicles at authorised service stations.
• Major Repairs: Significant repair work, such as engine overhauls or major component replacements, also falls under this rate.
• Replacement of Parts: The GST rate of 18% applies to the cost of replacement parts and associated labour charges.

In notification No. 12/2017- Central Tax(Rate) on June 28, 2017, it was mentioned that vehicles used for pure services, excluding works of composite supplies and other contract services are liable to pay GST on the total cost of repair services.

Conclusion

Hopefully, this all-in-all overview of the GST on car repair services has helped to clarify all your confusion. The taxation structure of GST permits taxpayers to claim Input Tax Credit on the paid GST when purchasing goods for their businesses. Taxpayers must keep the above-mentioned restrictions and eligibility criteria in mind for a hassle-free process ahead.

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