1. Title of the Document
| Document Title | Clarification on Input Tax Credit admissibility to authorised agents appointed by manufacturers for sale of motor vehicles, pursuant to Circular No. 231/25/2024-GST dated 10.09.2024 |
| Document Number | Circular No. 262/08/2026-GST (F. No. CBIC-20001/2/2026-GST) |
| Issuing Authority | Central Board of Indirect Taxes and Customs (CBIC), GST Policy Wing, Department of Revenue, Ministry of Finance, Government of India |
| Date of Document | 26.10.2026 |
| Relevant Provisions | Section 168(1) of the CGST Act, 2017; Section 17(5)(a)(A) of the CGST Act, 2017; Sections 16(1) and 18(1) of the CGST Act, 2017 (referred to in section 17(5)); Para 4.6 of Circular No. 231/25/2024-GST dated 10.09.2024 (withdrawn); Central Motor Vehicle Rules, 1989 |
2. Summary of the Document
The Central Board of Indirect Taxes and Customs (CBIC), GST Policy Wing, has issued Circular No. 262/08/2026-GST dated 26.10.2026 under section 168(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), clarifying the admissibility of input tax credit (ITC) on demo vehicles purchased by authorised dealers appointed by vehicle manufacturers. It responds to trade representations made in light of para 4.6 of Circular No. 231/25/2024-GST dated 10.09.2024, and seeks uniform implementation across field formations.
Para 4.6 of the earlier circular had stated that where an authorised dealer merely acts as an agent or service provider to the manufacturer (the dealer-agency model), it provides marketing or facilitation services and does not supply motor vehicles on its own account. A demo vehicle used for test drives therefore could not be said to be used for further supply of such motor vehicles, and ITC on it was treated as blocked under section 17(5)(a)(A) of the CGST Act.
Section 17(5)(a) restricts ITC on motor vehicles for transportation of persons with approved seating capacity of not more than thirteen persons (including the driver), except when used for further supply of such motor vehicles, transportation of passengers, or imparting driving training. The Board notes two models of sale. In the dealer-agency model, the dealer buys new vehicles from the Original Equipment Manufacturer (OEM) as required for demo or test drives, while the OEM sells new vehicles directly to customers. In the traditional model, the dealer buys a fleet and designates a few vehicles as demo vehicles.
The Board observes that, in both models, demo vehicles serve the same purpose of giving customers a driving experience before purchase. They are bought from manufacturers against tax invoices, typically shown as capital assets, held for a mandatory period, and thereafter generally sold at written down value with applicable tax paid at that time. They are treated at par under the Central Motor Vehicle Rules, 1989, and denial of ITC to one model was found discriminatory.
Relying on the statutory text, the Board notes that the phrase “such motor vehicles”, rather than “said motor vehicle”, in section 17(5)(a)(A) indicates that ITC is permitted not only on the specific vehicle sold but also on vehicles used for further supply of similar motor vehicles. Para 4.6 has accordingly been withdrawn, and ITC on demo vehicles is clarified as not blocked under section 17(5)(a) for the dealer in the dealer-agency model.
Legal Takeaway: The circular places dealer-agents on par with traditional dealers by reading the exception in section 17(5)(a)(A) according to the function of the demo vehicle rather than the dealer’s contractual model. Being issued under section 168(1), it binds departmental officers, and dealers facing notices or demands under sections 73 or 74 (or section 74A, as applicable) founded on para 4.6 may rely upon it. The circular does not expressly address earlier periods, and the conditions of section 16 and the tax payable on later sale of the vehicle under section 18(6) continue to apply.
3. Tabular Summary
| S. No. | Subject | Para of Circular | Earlier Position | Present Clarification | Relevant Provision | Practical Impact | Action Point |
|---|---|---|---|---|---|---|---|
| 1 | Purpose and legal basis | Paras 1–2 | Para 4.6 of Circular No. 231/25/2024-GST dated 10.09.2024 dealt with ITC on demo vehicles | Clarification issued on trade representations to ensure uniform implementation | Section 168(1), CGST Act | Binding on field formations | Bring the circular to the notice of the proper officer in pending matters |
| 2 | Dealer-agency model | Paras 3 and 5 | ITC on demo vehicles blocked, as dealer only provides marketing or facilitation services | Dealer buys vehicles from OEM for demo or test drive; OEM sells new vehicles directly to customers | Section 17(5)(a)(A), CGST Act | Model recognised for ITC purposes | Keep agency agreement and demo-vehicle records ready |
| 3 | Traditional dealership model | Para 5 | Not affected by para 4.6 | Dealer buys a fleet and designates a few vehicles as demo vehicles | Section 17(5)(a)(A), CGST Act | No change | None |
| 4 | Parity between the two models | Para 5.1 | Treatment depended on whether the dealer sold vehicles on its own account | Same purpose; bought against tax invoices; shown as capital assets; held for mandatory period; generally sold at WDV with tax; treated at par under CMV Rules, 1989; denial is discriminatory | Section 17(5)(a), CGST Act; Central Motor Vehicle Rules, 1989 | Uniform treatment of demo vehicles | Maintain invoices, fixed asset register and sale records |
| 5 | Meaning of “such motor vehicles” | Para 6 | Exception read as confined to vehicles supplied by the dealer on its own account | Phrase covers vehicles used for further supply of similar motor vehicles | Section 17(5)(a)(A), CGST Act | Function-based reading of the exception | Cite the reasoning in replies to SCNs and in appeals |
| 6 | Withdrawal and final clarification | Para 7 | Para 4.6 denied ITC to dealer-agents | Para 4.6 withdrawn; ITC on demo vehicles not blocked under section 17(5)(a) for the dealer in the dealer-agency model | Section 17(5)(a); Sections 16 and 18(6), CGST Act | Dealer-agents eligible, subject to section 16 conditions | Review past reversals, demands and section 16(4) time limits |
| 7 | Implementation | Paras 8–9 | — | Trade notices to be issued; difficulties to be reported to the Board | Section 168(1), CGST Act | Field formations to publicise the circular | Track State and Central trade notices |
Download the Document: Circular No. 262/08/2026-GST dated 26.10.2026 (PDF)
Disclaimer: Prepared by Team GSTIndiaguide.com. This summary is for information and does not constitute legal advice. Refer to original notification, judgement, circular or other documents for reference.
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