Since one and half year from date of implementation of GST, there are several confusions regarding rate of tax applicable on supply of motor vehicles. In this article I would like to throw some light on changes on GST implications on supply of old/used vehicles.
In this article we would aim to cover:
1) General Classification
2) GST Rate changes (including abatement)
3) Exemption from URD purchases
7) 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 over a period of time:
GST rate in case of old and used car was same as applicable on new car up to 25/01/2018. Following are rates as per notification no. 01/2017 Central Tax (Rate) up to 25/01/2018 and rates after 25/01/2018, which are reduced through the notification no. 08/2018 Central Tax (Rate).
|Category of car (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.
This would provide relief to the persons dealing in the buying and selling of motor vehicles. Although, it would also help reduce the impact for a registered person who is selling the motor vehicle being a fixed asset.
Conditions for claiming such rates & exemptions:
a. Where depreciation claimed under Income tax, margin shall be calculated as consideration received (-) depreciated value of goods as on date of supply. Here, it is important to note, that although Income Tax required depreciation to be calculated on the asset block, the rate is required to be applied for the specific motor vehicle, upto the date the supply.
b. The credits under GST or erstwhile laws have not been claimed. (GST, VAT, ED, ST)
Changes of GST Cess rate over a period of time
In case of motor vehicles even the rate of GST compensation cess has undergone many changes from initial compensation cess notification no. 01/2017- Compensation cess (Rate) vide notification no. 05/2017 dated 11th September 2017 and 01/2018 dated 25th January 2018.
|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|
Abatement notification for supply of used cars:
In terms of notification no. 37/2017 Central Tax (Rate) & 38/2017 Integrated Tax (Rate) & 07/2017 Compensation cess (Rate) dated 13/10/2017, the goods falling under chapter 87 can avail the benefit of discharging GST rate @65% of taxable value, only if the following conditions satisfied.
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 who is dealing in second hand sale of motor vehicle (which is falling under chapter 87) could claim the abatement of 35% of value of taxable supplies and pay GST on only 65% of value of supply of such motor vehicle.
In the GSTR-1 return, to claim 65% option, it has to be selected specifically.
Exemption notification for purchase of old and used cars:
In terms of Notification no. 10/2017 – Central Tax (Rate) & 4/2017 Compensation cess (Rate) dated 01/07/2017, exempts intra state purchase of second-hand goods from an unregistered person (sec 9(4) of CGST Act) by a registered person, dealing in buying and selling of second-hand goods as per section 32(5) of CGST Act 2017.
a. As per the above notification the exemption benefit can be availed by the dealer (who are into buying and selling of second-hand goods) when motor vehicle is purchased from the unregistered person, located in the same state.
b. The notification would not be applicable in case of purchases from a registered person or inter-state purchases.
Valuation under GST:
Rule 32(5) of CGST Rules 2017 talks about valuation in case of second-hand goods. In terms of Rule 32(5) –
a. 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 minor processing which does not change the nature of such goods.
b. Where no input tax credit has been availed on the purchase of such goods.
c. Value of supply of such second-hand goods would be the difference between the selling price and the purchase price.
d. Where the value of such supply is negative, it is ignored for the purpose of valuation of such supply.
Note: Where value of supply is negative, it need not be considered as exempt/non-GST supply, and correspondingly, would not attract ITC reversal under Rule 42/43.
All the above notifications have been explained through Illustrations:
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 1498cc and 3998mm on 02/07/2017 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:
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:
(B) CGST – 9.10% = 14*65%
(C) SGST – 9.10% = 14*65%
(D) Cess – 11.05% = 17*65%
Note: The scenario 1 would still hold good during this period
Scenario 3: Sale of old and used car combination of Scenario 1 & Scenario 2
On plain reading of Rule 32(5) of CGST Rules & Notification no. 37/2017 CT (R) & 38/2017 (R) it can be 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.
However, the author is of the view that the department may dispute availment of both the exemptions together. Further, this may not be the intention of law.
Scenario 4: Sale of old and used cars on or after 25/01/2018:
The above notification renders Rule 32(5) and notification 37/2017 (condition 2) redundant in such scenario.
|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.
1. Whether GST liability on margin can be discharged inclusive basis i.e. margin inclusive of GST?
Ans: No, in terms of Rule 32(5) of CGST Rules, GST needs to be charged on margin (i.e. sale price – purchase price).
2. Whether services provided by the second-hand car dealer could be considered as intermediary service?
Ans: 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, TCS collected under the provisions of Income Tax will it be included in the Taxable value under GST?
Ans: a) In terms of circular no.76/50/2018- GST, it has been clarified that, section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, if charged separately by the supplier.”
b) Accordingly, TCS collected should be included in the taxable value.
c) Hon’ble Kerala High Court in the case of SN Automobiles Private Limited vs. UOI & CBIC has stayed the imposition of GST on TCS collected.
d) It is important to note Circulars issued by the department are not binding the assessee, but are binding on the department.
4. Whether dealers can avail the ITC on old and used cars purchased from the registered tax payers?
Ans: 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?
Ans: The Demo car is used for the purpose of test drive and sold at a 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.
6. Will there be any change in invoicing and return filing procedures?
Ans: No, tax invoice, and GST returns would be filed as normal without any modifications.
1. GST council may Increase cess rates to boost e-vehicles.
Ans: a) Currently GST rate for cars are at 28% + 15% – 22% of cess for the midsized and luxury cars, the cess is expected to be raised by 10%
b) To reduce dependence on non-renewable resources (fuel).
2. Centre contemplating bringing petrol, diesel under GST:
Ans: a) The present government is considering to bring petrol and diesel under the ambit of Goods and Services Tax (GST)
b) If petrol and diesel are brought under GST, it will help bring down their prices by Rs. 20-30, this may help increase demand for petrol and diesel vehicles.
This article has been prepared by Kishore Bandari (Article assistant) and vetted by CA Akshay Hiregange.