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
6) Upcoming/ related GST updates
General Classification of Motor Vehicle
|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)|
|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.
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:
(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:
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:
|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 firstname.lastname@example.org or email@example.com.
(Republished after updation with Amendment since last Publication)