• Dated 23^rd March, 2026

Margin Scheme Does Not Bar ITC on Ancillary Inputs and Services under GST: Karnataka AAR

BRIEF FACTS:

The Applicant is engaged in the business of trading in used motor vehicles. It purchases pre-owned vehicles, undertakes minor refurbishment and repair, and thereafter sells them. GST is discharged under the margin scheme in terms of Notification No. 08/2018–Central Tax (Rate), i.e., tax is paid only on the difference between the purchase price and the selling price. The applicant sought an advance ruling on whether it is entitled to avail input tax credit on various inward supplies such as repair and refurbishment services, marketing and advertising services, professional and consultancy services, housekeeping and security services, rent, administrative expenses, as well as on capital goods like laptops, furniture, and office equipment.

ASSESSEE'S CONTENTION:

The Applicant contended that it discharges GST on the margin i.e., the difference between the purchase price and selling price of used motor vehicles in terms of the special valuation scheme prescribed under Notification No. 08/2018-CT (Rate). It was argued that the restriction contained in the said notification applies only to "such goods", meaning the used motor vehicles themselves, and does not extend to other input goods, input services or capital goods used in the course of business. The Assessee further submitted that expenses such as refurbishment and repair, marketing and advertising, professional and consultancy fees, rent, manpower and other administrative overheads are essential business expenditures incurred in the course or furtherance of business, and therefore Input Tax Credit on such inward supplies is admissible under Section 16 of the CGST Act. It was also emphasized that denial of ITC on these ancillary inputs would defeat the fundamental objective of GST to avoid cascading of taxes and double taxation, particularly when GST is already being paid on the margin value of the used vehicles.

DEPARTMENT'S CONTENTION:

The jurisdictional concern in the present matter arose from the interpretation of the margin scheme prescribed under Notification No. 08/2018-CT (Rate), which specifically restricts availment of Input Tax Credit in respect of the used motor vehicles supplied under the scheme. In view of this restriction, a doubt was raised as to whether the bar on ITC should also be construed to extend to ancillary input services, input goods and capital goods used in connection with the business of trading in second-hand vehicles. The underlying apprehension was that permitting ITC on such related expenses might be inconsistent with the intent of the concessional taxation mechanism based on margin value, and could potentially dilute the scheme designed for simplified valuation and taxation of used goods.

DECISION:

The Authority for Advance Ruling, Karnataka ruled in favour of the applicant and held that input tax credit is available on input goods (other than used motor vehicles), input services, and capital goods. The Authority observed that the restriction under Notification No. 08/2018 is confined to the used motor vehicles, referred to as "such goods" in the notification, and does not extend to other inward supplies used in the course or furtherance of business.
It was further observed that the inward supplies in question do not fall within the scope of blocked credits under Section 17(5) of the CGST Act. Accordingly, there is no statutory restriction on availing ITC in respect of such supplies. The applicant was therefore held entitled to avail input tax credit, subject to fulfillment of the conditions prescribed under the CGST Act and the Rules.

BTA's COMMENT:

The ruling clarifies that the margin scheme does not result in a blanket denial of input tax credit. The restriction is limited to the goods covered by the notification, namely used motor vehicles. Where other goods or services are procured for business purposes and are not specifically barred under the statute, input tax credit remains available. The decision reiterates that restrictions on ITC must be strictly construed and cannot be extended beyond the express provisions of law.

Case Reference: Toyota Mobility Solution and Services India Pvt. Ltd., [TS-154-AAR(KAR)-2026-GST], decided on 11.02.2026 by the Authority for Advance Ruling, Karnataka.

Author - Shristy Pathak

Editor by - Madhurima Bose