Taxpayers are required to purchase Vehicles and other goods which are then used by the top management or other employees. These goods are capitalized in the books of accounts and depreciation is claimed in income tax considering them as normal business assets. In the earlier indirect tax regime (Excise and VAT) one was required to pay tax at the rate of 1% subject to maximum of Rs. 2000. However there were enough judicial precedents available which said that one is not required to pay VAT as the same was not classifiable as a transaction being in the course of trade or commerce.
Under GST regime, question is arising whether sale of goods lying in the fixed assets of a registered person will be chargeable to GST or not. We have analyzed the question from the view point of taxability of Sale of Used Car by a Registered Person who is not into the business of sale and purchase of used cars, same is as under:
Basic assumptions for the following opinion are as under:
a. Goods being discussed are cars
b. The registered person purchased the car and did not avail credit of the indirect taxes levied thereon
A. Taxability
1. As per section 7 (1) (a) of the CGST Act, all forms of supply of goods like sale, transfer etc made for a consideration by a person in the course of business or furtherance of business are a “Supply”:-
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. Term “Business” is defined in section 2 (17) of the CGST Act whereby sub clause (a) and (b) thereof is relevant for this discussion. It says that any trade or commerce done with or without intent of profit or any activity incidental or ancillary to such trade or commerce will be termed as BUSINESS.
2 (17) “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
3. Selling a used car by a company which is essentially into the business of goods other than cars cannot therefore be termed as a transaction done “in the course of business or in furtherance of business”, therefore on this count it won’t be a SUPPLY and hence cannot be a taxable supply. This very issue has been tested in the courts including the Supreme Court of India in many cases under the VAT regime. Under majority of the judgments, courts have said that sale of goods can be brought to tax only if done with an intention of doing business in those goods and not otherwise. In the case of Panacea Biotech Ltd. the issue was taxability of sale of used car under Delhi VAT and whether the same was covered in the definition of “business”. Hon’ble Delhi High court in this case has held that the same will not be regarded as sale ‘in connection with or incidental or ancillary to’ business and hence shall not be taxable.
4. Accordingly, in our opinion as per the test laid out in section 7 (1)(a) of the CGST Act, transaction of selling goods capitalized in the books of accounts will not be a “Supply” and therefore will be not taxable under section 9 of the said act.
5. Further, section 7 (1) (d) of the CGST Act says that all activities listed in Schedule II shall also be termed as a “Supply”. 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.
7 (1) For the purposes of this Act, the expression “supply” includes––
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
Schedule II
4. Transfer of business assets
(a) where goods forming part of the assets of a business are transferred or disposed of by or 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 or disposal is a supply of goods by the person;
6. 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. Further, as the transaction being termed as supply vide clause (d) of sub section (1) of section 7, the condition of supply made for a consideration and for furtherance of business is not applicable for the supplies defined under Section 7(1)(d) of CGST Act.
7. Therefore, in our opinion, selling of car lying in the fixed assets of a registered person will be a taxable supply.
B. Valuation
1. The government has introduced the margin scheme wide Notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018, where in the rate of tax has been prescribed as under:
| Sr. No. | Chapter, Heading, Sub‑ heading or Tariff item | Description of Goods | Rate (CGST + SGST) |
| (1) | (2) | (3) | (4) |
| 1. | 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.
Explanation. – For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under. |
18% |
| 2. | 8703 | Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm
Explanation. – For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under. |
18% |
| 3. | 8703 | Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.
Explanation. – For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above. |
18% |
| 4. | 87 | All Old and used Vehicles other than those mentioned from S. No. 1 to S.No.3 | 12% |
2. 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.
3. 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.
4. In Nutshell, in our opinion, GST is exigible on sale of motor vehicle at the above rates on the margin defined as in point no.2 above.
Author Bio
Hello sir
We have purchased a 2nd hand Truck value 11,00,000 Rs from a GST Registered Firm. And I am also a GST Registered Firm. Can we Demand GST Invoice from Selling Firm. And Also Claimed GST Tax.
Dear sir
It is very important to note here that
according to Section 7(1)(a), any activity will be treated as a supply when the condition of “supply of goods or services is fulfilled that :-
a) It is made or agreed to be made for consideration
b) it is in the course or furtherance of business” is fulfilled.
to that extent, the above article is correct in the current scenario
However as per current law which has amended Section 7 and removed 7(1)(d) and brought new subsection ( 1A) to section 7which clearly states that :-
Activities referred under schedule -II are only for the purpose of classification as to whether the said activities shall be regarded as supply of goods or as supply of services merely because an activity has been prescribed under the schedule-II shall not tantamount that such activity qualifies the definition of supply. It’s only when, an activity, should first constitute a supply under the provisions of Section 7(1). Then only then we will see whether it is supply of goods or as supply of services.
Hence role of schedule -II is only clarificatory it now cannot make any activity a supply
So in the current scenario since Section 7(1)(d) read with Schedule II which used to specifies the activities stated in schedule II be treated as supply without the condition of “supply of goods or services in furtherance of business” or not has been deleted
which means first make any activity a supply under 7(1) and then for better clarification regarding that whether it is supply of goods or supply of service proceed to schedule II
hence sale of car will not be Supply
I m individuals person, 2016 purchase new car 2800cc innova 25 lacs, now 2020 march i will sold my car in 6 lacs to individuals person by check..
By seller have registered under business GST..
What will GST apply or not??
Sir i would like to know whether i have to pay gst on old 2nd car which is 800cc.alto.if so how much %
INNOVA 2494CC PURCHASES ON JAN 2012 OF RS.1370000/- SALES VALUE 600000
GST AMT.PAYABLE
Sir, I am director of a Pvt. Ltd Company. I purchased a new car and in exchange I sold old car. Do We have to pay GST for sale of old car. The car was purchase during the vat period and no input was claimed at that time
I m proprietor of transportation co ,I want to sale my old commercial vehicles which I purchase after 1 July 2017 I got depression as per it rules ,now I want to sale this vehicle,all vehicles are above 1000 cc ,so what rate of gst applicable
Sir, Please let me know in which coloumn we should make the entry in GSTR 1 and GSTR 3b for sale of old car which we sold for small margin. (Sale value was greater than WDV as per IT rules) Would be really grateful if you could detail how to make an invoice also. Thanks.
Sir, Please let me know in which coloumn we should make the entry in GSTR 1 and GSTR 3b for sale of old car which we sold for small margin. (Sale value was greater than WDV as per IT rules) Would be really grateful if you could detail how to make an invoice also.
For the purpose of calculating margin WDV as per Income tax to be considered or WDV as per Companies Act 2013 to be considered
Sir
I am a sole proprietor of a jewellery with a turnover slab of above 3crores per year,
I owe a car in my name,now I want to sell the same,do I have to pay GST?
As per your article if I sell a second hand car at less then book value no GST is required to be paid.
nice article
Sir, Please let me know in which coloumn we should make the entry in GSTR 1 and GSTR 3b for sale of old partnership firm car which we sold for small margin. (Sale value was greater than WDV as per IT rules) Would be really grateful if you could detail how to make an invoice also. Thanks in advance
OLD AND USE TRUCK SALE GST RATE
Sir we are partnership professional service Provider and used old car in name of parner in firm we are want sale this car please inform gst are applicable amd yes which rate ?
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,
in case of Private limited company sold its car which is shown in fixed assets. then wdv as per company act or income tax act will be taken for margin on which gst is to be paid.
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,
Here Depriciate value as per income tax act of book value as per companies act 2013 ?
Hi
I have the same query as Mr Anil Gupta has. We are a private limited company sold used car to a car dealer. This car was purchased during pre-GST era and input was not availed during purchase. In order to compute the taxable value under Margin Scheme, please let me know whether we need to consider the depreciation as per “Companies Act” or as per “income tax act”.
Thank you
Nagaraj G
COMPOSITION DEALER PURCHASES NEW COMMERCIAL CAR NOT ITC CLAIM BUT DUE TO AFTER 6 MONTH CAR SALE ITC CHARGES RATE PLS HELP
Thanks
I am registered individual dealer. 3 years back i purchases secondhand car now i wish to sell this car so now i can pay GST on such secondhand selling car.I am reseller in CRC sheets & other furniture items. Please let me know that how much i pay gst and on what amount. Please give me reply on my email id
Hello Sir ,
whether GST will be applicable if we ( individual – not registered ) sells his motor vehicle to a registered dealer .
If company is reselling car to its employee under own your car policy at a nominal amount, whether the sales price needs to be revised to “Fair Market Value” for calculating GST?
My company has sold a car to a second hand dealer for 165000/-. Kindly please give me a format for billing. Also is it necessary to raise an Invoice on the second hand dealer.
what will the valuation of Car if Sold at Nominal Price of Rs. 100 for the purpose of GST
Thank you Jainam Shah, it is helpful. In nut shell, Second hand cars sold are exigible. Point is whether valuation rules will be applicable for determination of price? normally, such cars are sold to employee at nominal value of Rs. 100 or so.
How would a SALE by Registered “non-dealer in motor vehicles” to a registered dealer in Motor Vehicles” reflect in the sellers’ GST returns (GSTR3B and GSTR1)?
Very good informative article but some clarity needed in terms of valuation applied on total value of margin and 37/20017-CGST both are continue.
At Para 4 You say its not part of supply so not taxable
while in para 6 its qualified as supply and taxable
please clarify this as its very important issue in industry
Very Informative AND Precise article