GST and Compensation Cess Applicability on Sale of Old/Used Motor Vehicle in different Scenario

Take Away from this article: Whether GST and Compensation Cess is applicable at different rates and/or Concessional rates or not on sale of old/used motor vehicle

GST applicability on sale of Old/Used car in the following scenario has always been subject of interesting discussion:

  • By car dealer (in the business of purchase and sale of old/used motor vehicle whether such dealer does exclusively deal with old/used vehicle or show rooms for new cars where old/used motor vehicle also deal with)
  • Employer to employee
  • Sale of personal/business/Commercial by Unregistered/Registered to Registered/Unregistered/Car Dealer
  • In any other situation

Q 1. Is Sale of Old/Used Motor Vehicle would be considered as sale or transfer under GST Act and GST is applicable?

Ans. 

  • NO, if it is not in the course or furtherance of Business. For instance, Person ‘A’ sells his/her car used personally to another person or car dealer because Person ‘A’ does not deal with Car or no business associated with the same
  • YES, if it is in the course or furtherance of Business. In the above instance, Person A sells his/her car used for business purpose let say delivery of goods to another person or car dealer then it is supply in the course or furtherance of business and hence GST is applicable
  • Sale of used and old vehicles were taxed at the same rate as applicable on new vehicles

GST on Used Cars

  • The concept of GST is based on the supply of the Goods or services in the course or furtherance of business
  • Under section 2(92) read with section 3, all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and a supply specified in Schedule I, made or agreed to be made without a consideration
  • Clause 4 (a) of schedule II says that if goods forming part of the assets of a business are transferred under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer is also a supply of goods. a car which is a part of the business assets of the company as the same is capitalized in the books, if transferred, then vide section 7 (1) (d) read with Schedule II clause 4 (a) of the said Act shall be termed as a “Supply” and vide section 9 shall be a taxable supply
  • “Business” includes any trade or commerce done with or without an intent of profit or any activity incidental or ancillary to such trade or commerce

The above discussion can be summarized in the following table:

Used by Seller

Seller Registered Buyer Registered

GST Applicable

Personal

No No No

Business

No

No

No

Business

No

Yes

Yes (RC Basis)

Business

Yes

No

Yes

Dealer Yes No

Yes

2. Now, the Question comes at what rate GST & Compensation Cess is to be charged?

Ans.  If Seller claimed ITC: GST & Compensation Cess (CC) would be on ‘Transaction Value’ at below rates:

Ch Description GST CC
87 Electrically operated vehicles, including two and three wheeled electric vehicles 5 Nil
8703 Not Exceeding 4000 m length: Petrol/LPG/CNG Vehicles not more than 1200 CC/Diesel Vehicles not more than 1500cc engine capacity for persons with orthopedic physical disability 18
8703 Motor cars and other motor vehicles principally designed for the transport of persons including SUVs/racing cars 28
8703 Petrol, Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000 mm 1
8703 Diesel driven motor vehicles of engine capacity not exceeding 1500 cc and of length not exceeding 4000 mm 3
8703 Motor vehicles of engine capacity not exceeding 1500 cc 17
8703 Motor vehicles of engine capacity exceeding 1500 cc 20
8703 Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles 22

3. If Seller did not NOT claimed ITC:

Ans.  Big Relief on Sale of Old and Used Vehicles. Concessional rates are available if input tax credit under GST or Cenvat Credit under Cenvat Credit Rules or ITC under State Vat was NOT availed.

a) After 25th January 2018:

  • Government by issuing the Notification No. 8/2018 dated 25th January 2018 Central Tax Rate read with state Tax Notification, reduced the Rate of GST on old and used vehicle as listed in below table
  • Government also Exempted the Cess applicable on sale of Used vehicle through Notification No. 1/2018 Compensation Cess Rate
  • Please note the Concessional rates are not available if input tax credit under GST or Cenvat Credit under Cenvat Credit Rules or ITC under State Vat was availed
  • Valuation: Value on which GST at above concessional rates to be calculated shall be Margin of Supply which is to be calculated in the manner as mentioned in Notification which is given below:
    • in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act,1961(43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored; and
    • 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.
Ch Description GST
8703 Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more 18
8703 Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm 18
8703 Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility 18
87 All Old and used Vehicles other than those mentioned from S. No. 1 to No.3 12

b) Before 25th January 2018:

  • Government by issuing the Notification No. 37/2017 dated 13th October 2017 Central Tax Rate read with state Tax Notification and Notification No. 1/2017 dated 13th October 2017 Compensation Cess Rate reduced the Rate of GST and Compensation Cess on old and used vehicle to 65% of central tax applicable otherwise on such goods under Notification No. 1/2017-Central Tax (Rate) dated, 28th June, 2017 under Chapter 87 subject to following condition
    • Nothing contained in this notification shall apply on or after1st July, 2020
    • The Motor Vehicles was purchased by the lesser prior to 1st July, 2017 and supplied on lease before 1st July, 2017
    • The supplier of Motor Vehicle is a registered person
    • Such supplier had purchased the Motor Vehicle prior to 1st July, 2017 and has not availed input tax credit of central excise duty, Value Added Tax or any other taxes paid on such vehicles
  • Valuation: Taxable Value

Let us discuss few other important points with respect to Sale of Old/Used Motor Vehicle:

  • Sale of used vehicles supplied by Government:
    • In case of used vehicles, supplied by Central Government, State Government, Union territory or a local authority, the registered person receiving the supply is liable to pay tax under reverse charge vide Notification No. 4/2017-CT (Rate) dated 28-6-2017 amended w.e.f. 13-10-2017
    • In case of sale of used vehicles supplied by Government to unregistered person, respective department of Central Government, State Government, Union territory or a local authority should obtain GST registration and pay GST vide para 1 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018
  • Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored

Disclaimer: This article or blog or post (by whatever name) is based on the writer’s personal views and interpretation of the Act/Rules/Notifications. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon. This article has been published for knowledge sharing purpose only.

The author is a practicing Chartered Accountant with an overall 20 years’ experience in both Industry as well as an independent practice and can also  be reached at cacafe4you@gmail.com

Source: CBIC Portal and other Contents available in Internet

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