Madras HC grants interim relief in ₹3,000 crore car leasing tax row

In a relief to car leasing companies, Madras High Court on Thursday stayed DGGI (Directorate General of GST Intelligence)‘s show-cause notices (SCNs) to these companies. The companies were denied input tax credit (ITC) to the tune of around ₹3,000 crore.

“There shall be an order of interim stay till the next date of hearing,” said Justice Mohammed Shaffiq. The Bench also issued notice to the tax department.

Multiple SCNs were issued by DGGI to car leasing companies denying ITC to the tune of ₹3,000 crore on motor vehicles alleging that they have misclassified their outward supply as ‘leasing services’ instead of ‘credit-granting services’. While GST on vehicle leasing is 28 per cent, credit granting services are exempted from GST.

The Court recorded the submissions of the petitioner that the SCN is issued without jurisdiction. The petitioner contended that the leasing of motor vehicles qualifies as a supply of ‘services’ and therefore, further supply of motor vehicles (in the form of lease) will not eschew the ITC through the provisions of blocked credit under GST law.

It was also submitted that in a similar matter, interim stay has been granted by directing the Revenue Department to not to pass any final orders.

Commenting on the development, Sandeep Sehgal, Partner (Tax) with AKM Global, said, “The court seems to have taken cognizance of the key concerns such as the misclassification of leasing services and the inappropriate reliance on unrelated laws like the Motor Vehicles Act. This interim ruling will provide temporary relief for the car leasing industry and and is expected to provide opportunity to these companies to present their case,” he said.