The Central Board of Indirect Taxes and Customs (CBIC), on October 26, 2026, has clarified the admissibility of Input Tax Credit (ITC) on demo vehicles purchased by authorised agents appointed by vehicle manufacturers for facilitating the sale of motor vehicles. The clarification has been issued under Section 168(1) of the CGST Act, 2017.
The Board has clarified that ITC on demo vehicles is not blocked under Section 17(5)(a) of the CGST Act in the dealer-agency model, wherein the authorised dealer purchases and maintains demo vehicles for test drives and demonstration, while the actual sale of vehicles to customers is made directly by the Original Equipment Manufacturer (OEM). The Board observed that demo vehicles serve the same purpose of promoting further supply of similar motor vehicles in both the traditional dealership and dealer-agency models. Accordingly, ITC shall be admissible in both models.
Consequently, the clarification provided under Para 4.6 of Circular No. 231/25/2024-GST dated 10 September 2024, which denied ITC on demo vehicles under the dealer-agency model, has been withdrawn. The authorities have also been requested to issue suitable trade notices to publicise this clarification.
[CBIC Circular No. 262/08/2026-GST]
