After the implementation of GST sale of used and old vehicles were taxed at the same rate as applicable on new vehicles which was 28% + Applicable cess which was up to 15%, and due to this effective tax on sale of old vehicles was upto 43%. This higher rate of tax was causing the burden on trade and industry and due to this there was slow down in the used vehicle market.
Big Relief on Sale of Old and Used Vehicles:
Government by issuing the Notification No. 8/2018 Central Tax Rate read with state Tax Notification, reduced the Rate of GST on old and used vehicle as follows:
1. GST-18% on 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.
2. GST-18% on Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm
3. GST-18% on Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility
4. GST-12% on All Old and used Vehicles other than those mentioned from S. No. 1 to No.3
Note: Government also Exempted the Cess applicable on sale of Used vehicle through Notification No. 1/2018 Compensation Cess Rate.
Concessional rates are not available if input tax credit under GST or Cenvat Credit under Cenvat Credit Rules or ITC under State Vat was availed.
If motor vehicles purchased prior to 1-7-2017 and Cenvat credit was not availed, the tax rate is 65% of normal rate. Similarly, if such vehicle was given on financial lease, tax rate will be 65% of normal rate – Notification No. 37/2017-CT (Rate) dated 13-10-2017. & GST Compensation Cess will also be 65% ( Notification No. 7/2017- Compensation Cess (Rate) dated 13-10-2017.)
Value on which GST at above rates to be calculated shall be Margin of Supply which is to be calculated in the manner as mentioned in Notification which is given below:
1. In Case Depreciation under Income Tax Act Availed: Margin of supply shall be difference between Sale consideration and Written down Value and tax to be calculated on such Margin, and where the margin of such supply is negative, it shall be
As per Income Tax Act , income tax requires computation of depreciation on the asset block , but for the purpose of GST rate is required to be applied for the specific motor vehicle.
In other cases: Margin of Supply shall be difference between sale price and purchase price Tax to be calculated on such Margin, and where the margin of such supply is negative, it shall be ignored. Negative value in valuations, 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.
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.
Sale of used vehicles supplied by Government– In case of used vehicles, supplied by Central Government, State Government, Union territory or a local authority, the registered person receiving the supply is liable to pay tax under reverse charge – Notification No. 4/2017-CT (Rate) dated 28-6-2017 amended w.e.f. 13-10-2017.
In case of sale of used vehicles supplied by Government to unregistered person, respective department of Central Government, State Government, Union territory or a local authority should obtain GST registration and pay GST-para 1 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018.
It is held by AAR Maharashtra in re ( 2018) CMS Info Systems Ltd. GST is payable on supply of old motor vehicles as scrap
(Author can be reached at [email protected])
(Republished with Amendments. Amendments been made by CA Anita Bhadra)