Introduction:

Since implementation of GST, there were confusion regarding rate of GST applicable on supply of motor vehicles. In this article, the GST implications on supply of old/used vehicles including following aspects have been discussed:

1) General classification

2) GST rate changes (including abatement) and value

3) Special valuation

4) Illustrations

5) FAQs

6) Upcoming/ related GST updates

General Classification of Motor Vehicle

HSN Description Examples
8702 Motor vehicles for the transport of ten or more persons, including the driver Passenger Bus, Tempo travellers
8703 Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702 Diesel and Petrol Cars, Electric cars, Ambulance, Three wheeled motor vehicles
8704 Motor vehicles for the transport of goods [other than Refrigerated motor vehicles] Lorries, Goods carrier

Changes of GST rate on old vehicles over a period of time

From 13th October 2017 to 24th January 2018, abatement in rate of tax

In terms of notification no. 37/2017 Central Tax (Rate) & no.38/2017 – Integrated Tax (Rate) & 07/2017 Compensation cess (Rate) dated 13/10/2017, the goods falling under chapter 87 were eligible for supply by discharging GST at 65% of applicable rate. 35% was abated. Such abatement till 24th January taxable value was allowed subject to following conditions:

a) The supplier of Motor Vehicle is a registered person.

b) Such supplier had purchased the Motor Vehicle prior to 1st July 2017 and has not availed credit of central excise duty, Value Added Tax or any other taxes paid on such vehicles.

On satisfaction of above-mentioned conditions, a registered person dealing in second hand sale of motor vehicle (which is falling under chapter 87) was eligible to claim the abatement of 35% of value of taxable supplies and pay GST on only 65% of value of supply of such motor vehicle.

After 25th January 2018

GST rate on supply of old /used vehicles was same as applicable on supply of new vehicles till 25th January 2018. The GST rates applicable till 25th January 2018 and thereafter provided below for easy reference:

Category of vehicle (Based on notification no.01/2017 & 08/2018) – CT (R) GST rate up to 25/01/2018 GST rate from 25/01/2018 (with conditions)
Petrol Vehicles with more than 1200cc engine capacity & 4000mm length (HSN 8703) 28% 18%
Diesel Vehicles with more than 1500cc engine capacity & 4000mm length (HSN 8703) 28% 18%
SUVs (including utility vehicles) with more than 1500cc engine capacity (HSN 8703) 28% 18%
Vehicles other than those mentioned above, including other vehicles under chapter 87 28%/18%/12%* 12%

* – Various types of motor vehicles covered under Chapter 87, which have varied rates.

The concessional GST rate is to be applied only on the positive margin subject fulfilment of following conditions:

a. Where depreciation claimed under Income tax, margin to be calculated as consideration received less depreciated value of goods as on date of supply. Here, it is important to note, that although income tax requires computation of depreciation on the asset block, the rate is required to be applied for the specific motor vehicle, upto the date the supply.

b. In other cases, the value for GST payment would be difference between the selling price and the purchase price and where such margin is negative, the same to be ignored.

c. The credits under GST or erstwhile laws such as VAT / VAT should not have been claimed earlier.

The ITC on purchase of motor vehicles is generally restricted under Section 17(5) of CGST Act 2017 except when used for certain categories of supplies. This reduction in rate of tax and its applicability only when there is a profit margin provides relief to regular registered persons who sell old used vehicles occasionally.  It is important note that depreciation to be considered is under Section 32 of Income tax Act and not under any other laws. There could be instances wherein the GST payment could have been missed out. In such cases, the GST rate and valuation to be applied as applicable from time to time and the concessional rate discussed above cannot be applied for past transactions.

Changes of GST Cess rate over a period of time

In case of motor vehicles, even the rate of GST compensation cess underwent few changes. Details provided below:

Compensation Cess – Motor Vehicles (USED/OLD only)
SI. No

.

Based on Notification 1/2017 & 5/2017 &1/2018 – Compensation Cess (Rate) GST% upto 10/9/17 GST % 11/9/17 – 24/1/18 GST % from 25/1/18 Remarks
Serial no. 47 & 48 in 01/2017 is substituted for below (only 8703)
1 Vehicle with both spark-ignition internal combustion reciprocating piston engine and electric motor as motors for propulsion [conditions a) Ambulance b) Three wheeled vehicle c) vehicle engine capacity <1200cc &<4000mm] NIL NIL NIL Applicable only where ignition + electric MV
2 Vehicle with both compression -ignition internal combustion piston engine [ diesel-or semi diesel) and electric motor as motors for propulsion [conditions a) Ambulance b) Three wheeled vehicle c) vehicle engine capacity <1200cc &<4000mm] NIL NIL NIL Applicable only where ignition + electric MV
3 (d) Motor vehicles other than those mentioned at (a), (b) and (c) above. [Added as per notification no.5/2017 Compensation cess (rate)] NIL 15% NIL
All other rates in notification 01/2017 remain same – GENERAL
4 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% 1% NIL Petrol Vehicles with said parameters
5 Diesel driven motor vehicles of engine capacity not exceeding 1500 cc and of length not exceeding 4000 mm. 3% 3% NIL Diesel Vehicles with said parameters

 

Serial no. 52 in 01/2017 is substituted for below (only 8703):
6 For other than above vehicles engine capacity not exceeding 1500cc 15% 17% NIL Generally, Petrol vehicles between 1200 – 1500 cc
7 Vehicles exceeding 1500cc known as SUVs.
Explanation of SUVs – Includes a motor vehicle of length exceeding 4000mm and having ground clearance of 170 mm. and above.
15% 22% NIL If declared as SUV, also need to check ground clearance
8 For other than above and not covered under serial no.4 vehicles engine capacity exceeding 1500cc. 15% 20% NIL Not an SUV but satisfying other criteria
Serial 42 & 53 in 1/2017 is substituted for below (other than 8703):
9 Motor Vehicle covered under HSN 8702 – for transport of 10 or more passengers 15% 15% NIL
10 Motorcycles of engine capacity > 350 cc, under HSN 8711 3% 3% NIL

 Special valuation for dealers in used vehicles

Rule 32(5) of CGST Rules 2017 provides special valuation in case of persons dealing in buying and selling of used vehicles. Such dealers can supply the goods as such or after minor processing which does not change the nature of such goods. If no input tax credit has been availed on the purchase of such goods, then GST may be paid only on the differential amount between the selling price and the purchase price. If the difference is negative, it is to be ignored for the purpose of valuation of such supply.

Note: Where the value if negative in such valuations, the same need not be considered as exempt/ non-GST supply, and therefore, therefore there is no need of reversal of ITC under Rule 42 or Rule 43 of CGST Rules 2017.

Few illustrations to understand the changes

Mr. Pradeep (car dealer) is into the buying and selling of old and used cars situated in Karnataka. He purchased a petrol car which is having engine capacity of 1498cc and 3998mm for a price of Rs.4,00,000 from an unregistered person who is also located in the same state. After minor changes/additions to the car, Pradeep sold the car for Rs.6, 00,000.

Sale value 6,00,000
Purchase value 4,00,000
Margin 2,00,000

Scenario 1: Sale of old and used car on or before 12/10/2017:

In terms of Rule 32(5) of CGST Rules 2017, GST is to be paid on the Margin i.e. Rs. 2,00,000 + GST at the rate of 45% (i.e. 28% +17%) which amounts to Rs. 90,000 (Rs. 2,00,000*45%).

Scenario 2: Sale of old and used car after 13/10/2017:

In this scenario the assessee has an option to avail the benefit of notification no.37/2017 CT(R) & 38/2017 IT(R) provides an abatement of 35% of taxes, computation is as follows:

SI.No. Particulars Amount
A Taxable value 6,00,000
B CGST (A*9.10%) 54,600
C SGST (A*9.10%) 54,600
D Cess (A*11.05%) 66,300
Total liability 1,75,500

 (B) CGST rate – 14*65% = 9.1%

(C) SGST rate – 14*65% = 9.1%

(D) Cess rate — 17*65% = 11.05% 

He may to opt to pay either Rs.90,000 as in scenario 1 or Rs.1,75,000/-. 

Scenario 3: Sale of old and used car combination of Scenario 1 & Scenario 2

On plain reading of Rule 32(5) of CGST Rules along with Notification no. 37/2017 CT (R) & 38/2017 (R), it could have been inferred that both the options could be availed simultaneously by the registered person on sale of old and used cars, i.e. Margin method + 35% abatement to pay tax as below:

SI.No. Particulars Amount
A Margin 2,00,000
B CGST (A*9.10%) 18,200
C SGST (A*9.10%) 18,200
D Cess (A*11.05%) 22,100
Total Liability 58,500

However, the author is of the view that the department may dispute this option and this may not be the intention of the law.

Scenario 4: Sale of old and used cars on or after 25/01/2018:

In this scenario, the assesses can avail the benefit of 08/2018 CT(R) and 1/2018 CC(R) the computation as per below which is much beneficial to assesses:

SI.No. Particulars Amount
A Margin 2,00,000
B CGST (A*9%) 18,000
C SGST (A*9%) 18,000
D Cess NIL
Total tax liability 36,000

 The liability has significantly reduced from Rs. 90,000 to Rs. 36,000 from the time when GST was implemented to January 2018.

Few FAQ’s related to supply of old and used cars

1. Can GST be discharged on inclusive basis under margin method?

No, in terms of Rule 32(5) of CGST Rules, GST needs to be charged on margin (i.e. sale price – purchase price). Margin amount cannot be treated as inclusive of GST. 

2. Whether services provided by the second-hand car dealer could be considered as intermediary service?

a) In terms of Section 2(13) of IGST Act, “Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

b) A second-hand car dealer who is purchasing and selling the goods on his own account would not be considered as intermediary.

c) A person who arranges for second hand car sales between two separate persons, who does not purchase and sell in his own name could be considered to be an intermediary. GST then could be charged as supply of services and not that of goods.

3. In case of sale of luxury cars and motor vehicles, will TCS collected under Income Tax law be included in taxable value?

It has been clarified by the board that such value would not be included as TCS is not a value for goods for payment of GST.

4. Whether dealers can claim ITC on old and used cars purchased?

a) Generally, car dealers work based on margin earned on sale, therefore, they would opt for concessional tax rates and valuation as provided under notification no. 08/2018 CT(R) and similar notifications.

b) If the dealers are not availing any exemption through the notifications, he would require to discharge GST on entire sale value at full tax rate, wherein he can avail the ITC on purchase of old and used car.

5. Whether a car dealer can avail the concessional rate benefit for demo cars?

The demo car is used for the purpose of test drive which may be sold at later date. It could be considered as “used/ old car”. Therefore, the dealer can avail the rate benefits which are applicable for the supply of old and used cars, subject to conditions mentioned therein.

Although, a cost benefit analysis is suggested to be performed, as the input tax credit eligible on purchase and the tax liability upon sale would lead to a beneficial tax position compared to the concessional rate tax structure.

Where the demo car is capitalised, the input tax credit may be disputed u/S 17(5) of CGST Act.

This article has been prepared by Kishore Bandari (Article assistant) and CA Akshay Hiregange. Vetted by CA Mahadev R. The author could be reached at kishore@hiregange.com or akshay@hiregange.com.

(Republished after updation with Amendment since last Publication)

Author Bio

Qualification: CA in Practice
Company: Hiregange & Associates
Location: Bangalore, Karnataka, IN
Member Since: 01 Feb 2019 | Total Posts: 9
Qualified as Chartered Accountant in 2016. Currently, I am Partner Designate of Audit & Assistance in Hiregange and Associates (BLR). View Full Profile

My Published Posts

More Under Goods and Services Tax

25 Comments

  1. Rajesh Gupta advocate says:

    Q a two’ wheeler dealer had stock of scooters on March could not be sold due to lockdown.so all vehicles were registered and caoitalized and no itc claim takenand afterwards sold to sister concern .no tax charged due to margin
    scheme.
    Now can this other sister concern can claim benefits of margin scheme as sale of used motor vehicle
    Pl suggest

  2. Sheetal Narang says:

    Hi
    In case a company sells its car to an employee and no VAT/ Excise input is availed at the time of purchase, then how the valuation of car is to be done as per the GST provisions?

    1. Akshay Hiregange says:

      If it is as per notif. 08/2018 then tax rate of 18%/12% would be applied on positive margin (only) Sale value – WDV as per ITA.
      Refer Scenario 4. (applicable for transactions after 25th Jan 2018 onwards)

      1. sheetal narang says:

        Okay. But if company is not dealing in second-hand goods of car/ not a car dealer than also scenario is applicable?

          1. Akshay Hiregange says:

            yes applicable to registered persons (includes all , even delaers)

            Yes, taxable value for the purpose would be sale value – WDV as per ITA (as on sale date)

          2. Akshay Hiregange says:

            Yes applicable to all registered persons (incl. dealers)

            Yes to Sale value – WDV as per ITC (as on sale date)

  3. Santhosh K V says:

    Sir,

    We are dealers of Passenger Cars. We have the sales of Demo cars. We have already registered the demo Vehicles in our name and, after usage for a period, planning to sell them within state. We purchased these vehicles from other state and availed the IGST input with Cess. We deal with all type Passenger Cars (Fuel and engine Capacity).

    Kindly suggest the GST calculation with Example.

    Thank You

    1. Akshay Hiregange says:

      Dear Santosh sir

      There are different views on credit eligibility on demo cars, considering that Section 17(5) restricts motor vehicle credit unless it is for further supply of such vehicles. Although, it is clearly a business expense.
      I opine that as intention is to sell in the future, the accounting treatment must not impact the credit claim and ITC must be eligible.
      Once, credit is claimed GST must be paid on demo car sale at the rate applicable to a new car itself.
      Notification 08.2018 cannot be relied upon as the pre-condition is that ITC must not be availed.
      Hope it is clear. If you’ve any specific doubts, you may please write to me at mail ID.

  4. Debgopal Samanta says:

    Sir,
    We are in manufacturing industry and we have sold a Innova Car which was used by our Directors. Now what would be GST rate and on what value we have to charge Gst. Do we need to issue invoice for the same? What would be the accounting treatment for the same? Kindly assist.

    Car sold for Rs. 770000/-
    Car Purchased Price Rs, 1295000/-
    Car wdv as on 546000/-
    Car depreciation upto the date of sale Rs. 154000/-

    1. Akshay Hiregange says:

      Please refer notification 8/2018-CT(R)
      Innova would probably fall under 18% rate.

      Tax payable on positive margin only.

      Rule 46 – tax invoice to be issued.

  5. akshay hiregange says:

    Yes your interpretation is right. It is “and”, therefore if > 1200 cc & 4000mm in length, then it would cover under 18%. If not satisfying one or the other condition it would attract 12%.

    Although, for academic interest, which segment of vehicles/vehicles can fall under this group?

    Practically, the vehicle manufacturing industry follows these norms to reduce the cess implication and helps in their tax planning

  6. palak karani says:

    Petrol Vehicles with more than 1200cc engine capacity & 4000mm length (HSN 8703).
    Is it that both the condition of 1200CC and 4000mm length must be fulfill for the old vehicle to be taxed at 18%.
    in your example in Scenario 4: the rate of tax should be 12% or 18%

  7. Jayeshkumar Kakkad says:

    Sir

    My company purchased truck in 2016, we claimed depreciation also till selling date i.e. Aug 2019

    This truck we sale in Aug 2019

    GST Applicable? % ? GST invoice we have to issue ?

    Regards

    1. AkshayH says:

      Dear Jayesh,

      Whether credit was claimed is pre-GST regime? If yes concessional rate cannot be applied, and vehicle has to be sold at 28%+cess on sale value inclusive basis (cess not applicable in case of goods transport vehicle)
      [Some special purpose vehicles @ 18%]
      If no, GST can be discharged at 12% on positive margin (sale value – WDV under Income Tax upto sale date).
      Hope this was clear. If you would require additional assistance write to akshay@hiregange.com

  8. Manish says:

    How the margin will be calculated in case of charitable trust?
    Because there is no depreciation claim. And if other case is considered, margin value will never be positive.

    How to comply in this case?

    1. AkshayH says:

      Hi Manish. I agree with your view, there would not be any GST payable for used car sales of a charitable trust by applying notification 08/2018-CT(R).

  9. Unni says:

    If the dealer want to sell a new vehicle which is need to be considered as a used car due to physical damage that happened before its delivery. Is the dealer need to treat it as a new vehicle or used one under GST?

    1. AkshayH says:

      Dear Sir,

      Used car has not been defined under GST. Although, the concept of ownership/title could prove to be useful to evaluate here. The dealer would not register vehicles in his name upon purchase, therefore, it would be a new vehicle. Suggest you to see if goods could be returned and new vehicle is given by the manufacturer. If not, tax would have to be charged at full rate i.e. 28% + cess if any.

  10. Vidya Jain says:

    Hi, for a second hand car dealer, for checking GST registration limit RS 20 lakhs limit should be of sales figure, purchase or difference between the two.

    1. AkshayH says:

      Hi Vidya,

      Great question. The value of supply as per Rule 32(5) is the margin only. And for the value limit of 20/40 lakh – such margin would need to be considered. Note conditions in rule to be followed.
      For train of thought – refer sec 22, 2(6), 15(1) & 15(4) and then rule 32(5).

    1. AkshayH says:

      Yes we have Mr. Paresh. Refer paragraph with heading “Changes of GST rate over a period of time” read with the Conditions. We have specifically mentioned the WDV concept. If you have further doubts please do write them here.

Leave a Comment

Your email address will not be published. Required fields are marked *