In re Tej Jain (GST AAR Rajasthan)
Amount paid to the owner of the car and amount incurred for the refurbishment of the said car are not 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 valuation and levy under Notification No. 08/2018-CT(Rate) dated 25.01.2018?
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, RAJASTHAN
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
> At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act I RGST Act would be mentioned as being under the “GST Act”.
> The issue raised by Mr. Tej Jain (hereinafter referred to as “applicant”), having his address at A-3, Ashok Vihar, Girdhar Marg. Malviya Nagar, Jaipur Rajasthan (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: –
(a) Classification of any goods or services or both:
Further, the applicant being an un-registered person as per the declaration given by him in Form (ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
A. SUBMISSION AM) INTERPRETATION OF THE APPLICANT:
1. That the business model planned by the applicant involves firstly purchase of old and used cars mostly from the unregistered persons. However, the vehicle can be purchased from the corporates also who are registered under GST.
2. That for the purchase of old and used cars, the applicant will deploy an internal inspection team which will inspects the car and prepare the report which will become the basis of the acquisition cost as one of the component of the purchase price.
3. 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.
4 That with purchase of such car. considering its condition and with an 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 which will include (but will not be restricted to):-
a. Tyre change
b. Oil change
c. Denting
d. Painting
e. Change defective parts such as broken light, wheel cover, etc.
f. Wiper blade or rear wiper
g. Gas for air conditioning
h. Dry clean
i. Box for power steering
j. Wheel cap
k. Engine oil
I. Air filter
m. Coolant
n. Number Plate
o. Seal cover
p. Clutch cable
q. Monogram set
r. Car washing
5. That after undertaking such cost, the refurbished car will be ready for re- sale and shall be displayed for to the interested and prospective buyers .
6. That apart from such refurbishment cost, cost will 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.
7. That considering condition of the car and the market force, in few cases, the applicant may also be able to sell the car without incurring any refurbishment cost. However, in such cases, the applicant is not expecting profit or may end up selling at negative margin.
8. That mostly individuals shall be prospective and target customers of the applicant however sales shall not be only restricted to them. The applicant will sell old and used refurbished car to the corporate customers if they are interested.
9. That since the applicant shall be in the business of selling old and used refurbished car hence its purchase and related cost of acquisition 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 accounts. But 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 accounts or in the Income Tax Return by the applicant.
10 .That on the contrary, the applicant 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.
11 .That applicant 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.
12 . That since the applicant shall be selling old and used refurbished car, hence for the purpose of discharge of Goods and Services Tax on its supply and will not claim any ITC. 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. The copy of said notification is enclosed and marked as Annexure-3.
13 . That in the Explanation to the said notification, where depreciation under the provisions of the Income Tax Act 1961 is not claimed, then the margin is required to be determined in accordance with the provisions of the Explanation (ii). The said explanation (ii) is read as under:-
(ii) in any other case, 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.
14 . That thus the tax is leviable as per the said notification on the margin where in accordance with the explanation (supra) the margin is difference between the selling price and the purchase price.
15 . That the question has been put up through the given application for Advance Ruling from 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.
STATEMENT CONTAINING INTERPRETATION OF LAW & FACTS, IN RESPECT OF THE AFORESAID QUESTION
I. APPLICANT’S ELIGIBILITY TO FILE PRESENT ADVANCE RULING APPLICATION
1. That sub section (c) of section 95 of CGST Act 2017 defines the term ‘applicant’ as under:
(c) “applicant” means any person registered or desirous of obtaining registration under this Act.
2. That in the present matter, the applicant is unregistered under the provisions of CGST Act 2017 and SGST Act 2017 and hence covered under the definition of the term “applicant” for the purpose of presenting the application before the Advance Ruling Authority.
3. That further section 97(2) of the CGST Act specifies the issues for which an advance ruling can be sought. Section 97 of the said act reads as under:-
(1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.
(2) The question on which the advance ruling is sought under this Act. shall be in respect of,-
(a) classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act;
(c) determination of time and value of supply of goods or services or both:
(d) admissibility of input tax credit of tax paid or deemed to have been paid:
(e) determination of the liability to pay tax on any goods or services or both:
(f) whether applicant is required to be registered;
(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
4. The applicant submits that the questions for determination in the instant advance ruling application concerns (a) determination of time and value of supply of goods or services or both, which is covered under the said section.
5. Therefore, in the instant case the applicant is eligible to file the present advance ruling before the Authority for Advance Ruling.
II. APPLICANT’S INTERPRETATION
Legal Provisions as applicable
1. According to Section 7 of Central Goods and Services Tax Act. 2017
7. (1) For the purposes of this Act, the expression “supply ” includes,-
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business:
2. According to Section 9 of the Central Goods and Services Tax Act 2017 which is charging section for GST
9. (1) Subject to the provisions of sub-section (2). there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may he prescribed and shall be paid by the taxable person.
3. That rate of GST (CGST) on supply of motor car. which is covered by the definition of goods as given under Section 2(52) of the CGST Act 2017 is notified under Schedule IV of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017.
4. That however power to grant exemption from tax has been given under provisions of Section 11(1) of the CGST Act 2017. By invoking such power, the Central Government has issued notification no 8/2018-C.T. (Rate), dated 25-1-2018 wherein effective rates of CGST on old and used Motor vehicles has been notified. Such notification has already been enclosed and marked as Annexure-3.
5 That according to such notification if ITC is not claimed on the inward supplies of goods by a registered person and it is supplying (selling) old and used motor vehicles as classified under Chapter 87 of the First Schedule to the Customs Tariff Act, 1975, then CGST is payable at the rate of 6% or 9%, as the case maybe on the value represents margin of the supplier (i.e. registered person).
6. That further it is clarified at the initiation only that the cost incurred on the refurbishment of acquired old and used motor car does not change the nature of the motor car at all. It is in fact widely known as sold in the market as old and used refurbished motor car only. In fact, if such activity of refurbishment is not done (whose requirements and gravity changes from case to case basis), then the car would not be saleable at all in the market.
7. That in plethora of orders passed by various AARs also it has been held that activities of repairing or cleaning or polishing which does not change the nature of goods would be allowed and the goods sold shall remain used and old goods. Such goods are commonly known as “Second Hand Goods” also in the popular sense.
8. That in fact for valuation of sale of second hand goods under GST, there is specified Rule 32(5) of the CGST Rules 2017 which brings out that minor processing which does not change the nature of goods is carried out on used goods, then they shall remain Second hand goods. The said fact has been tested and affirmed in various AAR orders such as,-
a. Attica Gold Pvt Ltd 2020 (36) G.S.T.L. 445 (A.A.R. – GST – Kar.)
b. Shambhu Traders Pvt Ltd 2019 (23) G.S.T.L. 293 (A.A.R. – GST)
9. That also without prejudice to the above, the wordings used in the Table in Column (3) of Notification No. 08/2018-CT(Rate) dated 25-01-2018 are reiterated for the sake of reference
