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

Qualification: CA in Practice
Company: Jainam Shah & Co.
Location: Ahmedabad, Gujarat, IN
Member Since: 25 Apr 2017 | Total Posts: 1

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Category : Goods and Services Tax (7604)
Type : Articles (17804)
Tags : goods and services tax (6078) GST (5679)

6 responses to “GST on Sale of used Motor Vehicle by a Registered Person other than dealer”

  1. Vidul says:

    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)?

  2. surendra says:

    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.

  3. Vinod Maheswari says:

    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

    • CA. Jainam Shah says:

      in para 4 we have talked about Section 7(1)(a), in which supply of goods or services will be treated as supply when the condition of “supply of goods or services in furtherance of business” is fulfilled. whereas, Section 7(1)(d) 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. Hence, the sale of used motor vehicle will be treated as supply as per Section 7(1)(d) and not as per Section 7(1)(a)

      I hope your query got resolved.

  4. Sachin says:

    Very Informative AND Precise article

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