The service of ‘Transport of passengers by any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient’ was liable to tax under the Finance Act, 1994 for the period upto June 2017 and thereafter liable to GST.
Notwithstanding, the provisions of law for the taxability of the service has been more or less the same, pre & post GST, implementation of GST had broadened the scope of supply. Consequent to such implementation, the situation of selling the motor vehicles after its due wear & tear has been ambiguous with regards to the taxability and rate of tax.
There are 2 type of suppliers, ones who are availing ITC on the purchase of motor vehicles being capital goods and charging a higher rate of tax on the outward supplies and other supplying the service at a composite rate without availing any ITC in line with Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.
The Finance Act, 1994 did not cover the supply of motor vehicle since it a good and since the vehicles are usually sold at a price lower than the written down value or written off, no other tax is leviable. However, Schedule II of the GST law, specifically provides transfer of business assets as a supply whether or not for a consideration and that includes all the possible disposal of asset. This created a lot of confusion since the supply of motor vehicle would attract GST @ 28% along with applicable Cess which was not logical and feasible.
Consequently, the Department issued various notification to clarify the matter vide notification no. 37/2017 Central Tax (Rate) & No.38/2017 – Integrated Tax (Rate) & 07/2017 Compensation cess (Rate) dated 13/10/2017 for the period upto 24.01.2018 & Notification No. 08/2018 – Central Tax (Rate) dated 25th January, 2018 for the period after 25.01.2018.
However, the above notifications provide clarifications and relief to the Assessee not availing ITC and charging a composite rate of GST. Therefore, where an Assessee sells the motor vehicle where ITC has been availed, the GST rate will be the rate of the motor vehicle plus compensation cess.