In re Tej Kumar Jain (GST AAAR Rajasthan)
It was held that notification No, 08/2018-Central Tax (Rate) dated 12.01.2018 clearly used word Purchase price , only price paid at the time of purchase can be considered as purchase price to calculate margin.
The appellant’s main thrust is that to calculate margin, purchase cost should be treated as purchase price. We observe that our legislature has wisely used the word purchase price to calculate the margin as benefit of notification will not be available, if the appellant has availed input tax credit. We find that the availment of this notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018 is optional. If the appellant wishes to avail input tax credit on the components used in the refurbishment of the old and used car, they can very well avail the same without availing benefits of the said notification. However, if the benefit of the notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018 is to be availed, then the conditions for the same have to be followed.
6.9 Therefore, in view of the above discussion, we hold that from the plain reading of the explanation (ii) to the notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018, it is noticed that the explanation (ii) clearly used the word ‘purchase price’ not the ‘purchase cost’ of the goods. It means only the amount paid at the time of purchase of used and old cars can be considered as ‘purchase price’ for the purpose of this notification.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, RAJASTHAN
At the outset, we would like to make it clear that the provisions of both the Central GST Act, 2017 and the Rajasthan GST Act, 2017 are same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central GST Act, 2017 would also mean a reference to the same provisions under Rajasthan GST Act, 2017.
2. The present appeal has been filed under Section 100 of the Central GST Act, 2017 (hereinafter also referred to as ‘the CGST Act’) read with Section 100 of the Rajasthan GST Act, 2017(hereinafter also referred to as ‘the RGST Act’) by M/s Tej Kumar Jain, A-3, Ashok Vihar, Girdhar Marg, Malviya Nagar, Jaipur(hereinafter also referred to as ‘the appellant’) against the Advance Ruling No.RAJ/AAR/2021-22/04 dated 25.08.2021
BRIEF FACTS OF THE CASE
3. M/s Tej Kumar Jain, A-3, Ashok Vihar, Girdhar Marg, Malviya Nagar, Jaipur(herein after referred as appellant) has filed appeal against Ruling issued by Authority for Advance Ruling Rajasthan vide order No. RAJ/AAR/2001-22/04 dated 25.08.2021. The Appellant has submitted appeal in this office in hard copy on 30.09.2021. Fee of CGST Rs. 10000/- and SGST Rs. 10000/- have been paid vide Challan dated 25.09.2021. Brief facts of the case are as under:-
3.1 Appellant is planning to start a business in the automobile industry, precisely related with purchase of old and used motor vehicles and then sale of these motor vehicles after refurbishment. The applicant is unregistered under GST at present. The business model planned by the appellant firstly involves purchase of old and used cars mostly from the unregistered persons. However the vehicle can be purchased from the corporate and car dealers also who are registered under GST. That for the purchase of old and used cars, the applicant will deploy an internal inspection team which will inspect the car and prepare the report which will become the basis of the acquisition cost as one of the component of the purchase price. That registration Certificate(RC) will be a compulsory document required while purchasing the car. Since these vehicles are meant for resale hence no other formality under the provisions of the Motor Vehicle Act 1988 is required to be undertaken to secure transfer of title of the vehicle from seller to appellant. That with purchase of such car, considering its condition and with intent to make it marketable to sell in the open market as “refurbished old/used car”, certain cost of refurbishment on said car will be incurred, after undertaking such cost, the refurbished car will be ready for sale and the appellant will display it through physical and electronic modes to invite the bookings.That the apart from such refurbishment cost, costwill also be incurred towards fuel (i.e. petrol and diesel) for the purpose of preparing refurbished old and used car. The said cost is incurred towards:
a. Getting the car to the applicant’s premises, if inspection is done at consumer’s place.
b. Sending the car at mechanic’s place (for refurbishment) and getting it back to the applicant’s premises.
c. Sending the car to the parking yard (where car is parked till the time it is not sold).
d. Cost of 5 liters of fuel in the tank of the car, as it has been decided as a policy matter to fill the tank with 5 litres at the time of selling.
3.2 Mostly individuals shall be prospective and target customers of the appellant however sales shall not be only restricted to them. The appellant twill sell old and used refurbished car to the corporate and car dealer customers if they are interested. Appellant shall be in the business of selling old and used refurbished car, hence its purchase and related costs incurred in bringing it to refurbished condition shall be treated as a profit and loss item from the perspective of accounting and inventory of such acquired old/used refurbished car shall not be treated as fixed asset in the books of account, rather it shall be treated as an inventory / stock item and no depreciation under the provisions of Income Tax Act 1961 shall be charged in the books of account or in the Income Tax Return by the appellant. The appellant shall treat such cost of purchase and cost of refurbishment as “acquisition cost” of the inventory of the old and used refurbished car and will show it at the expense side grouped under “Purchases” in the Profit and Loss Account. Appellant does not intend to claim or avail Input Tax Credit of tax charged (if any) on inward supply of motor car (i.e. acquisition) or on refurbishment cost incurred by it.
3.3 Appellant submitted that they will be selling old and used refurbished car and will not claim any ITC, hence for the purpose of discharge of GST on its supply, it is covered by the provisions of Notification No. 8/2018-CT (Rate) dated 25-01-2018 wherein for the purpose of levy of tax, the value is determined as margin. As per the said notification, tax in excess of tax payable on the margin is exempt and according to an Explanation to the notification, the value that represents the margin of supplier shall be the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored.
3.4 Appellant has filed an application for Advance Ruling before the Authority for Advance Ruling in context of the aforesaid Explanation (ii) to understand for the purpose of valuation, whether the amount paid to the owner of the car and amount incurred for the refurbishment of the said car are includible in the purchase price so as to deduct the same from the selling price of the old and used refurbished car to arrive as the margin for the purpose of levy of GST under Notification No. 8/2018-CT (Rate) dated 25.01.2018.
3.5 Authority for Advance Rulings, Rajasthan has answered the question in negative an hold that from the plain reading of Explanation (ii) to the aforesaid Notification it is observed that the Explanation (ii) undoubtedly/clearly used the word “purchase price” not the “purchase cost” of goods. It means only the amount paid by the applicant tat the time of purchase of used cars can be considered as “purchase price” there is no provision in the said notification to include the cost of refurbishment in the purchase price. Therefore, we find that there is no reason to include cost of refurbishment in the purchase price for calculation of margin.
4 That aggrieved by the ruling, the appellant has filed appeal before this forum on following ground.
4.1 Appellant submitted that the ruling passed by Authority for Advance Rulings is unreasoned and revenue biased since no mind has been applied to the submissions of the applicant and none of the submissions have been disposed of. A single paragraph has been given as findings where no reasoning or backing has been given for the irrational and presumptive interpretation of the provision.
4.1.1 That the applicant has given a detailed analysis of the relevant provisions of law in line with principles of interpretation of statutory interpretation and legal jurisprudence significant for the analysis. However, the Authority has brutally ignored the submissions without application of mind with a revenue biased mindset to ignore any submission which is not incremental for the revenue collection.
4.1.2 That in response to such a detailed analysis, the AAR has given the ruling on basis of a single paragraph only containing a presumptive interpretation that the Explanation (ii) undoubtedly/clearly used the word “purchase price” not the “purchase cost” of goods and it means only the amount paid by the applicant at the time of purchase of used cars can be considered as “purchase price”.
4.1.3 That however no reference has been given from where it can be inferred that ‘purchase price’ would meanonly the amount paid by the applicant at the time of purchase of goods and will exclude the other costs incurred in relation to procurement of the goods. It appears to be a presumption in vacuum without any reasoning or legal backing.
4.2 Appellant further submitted that it is apparent that the terms purchase price and selling price used in the Explanation have not been defined in the Notification or elsewhere in the statute, hence the same word price being used for sale and purchase in the same context has to be harmoniously interpreted to avoid absurd interpretation of law. Further in absence of a definition, there is an ambiguity in the interpretation of the terms and in such a case, taking the revenue biased meaning as the only meaning of the term is a presumption bad in law framed by misinterpretation of the statutory principle of literal construction
4.2.1 That it is apparent that under Explanation (ii)computation of margin has been explained as the difference between the selling price and the purchase price and neither of the terms have been defined in the Notification or anywhere else in the CGST Act or the rules made there-under.
4.2.2 That a practical example is enumerated below to explain the ambiguity in this regard:
