Second hand goods industry is growing day by day in India. There is well notified legislation in this regards in Australia, New Zealand, Singapore, etc. India has also covered under chapter IV : Determination of value of supply (GST Rules) – Rule 35(5) for dealers engaged in second hand goods.

Second hand market includes sales and purchase of second hand vehicles, books, mobiles, electronic gadgets, jewelry, clothes, other luxury items, etc. E-commerce websites like OLX and E-bay are also dealing in second hand materials sales and purchases. It is important to see how it affects such companies in GST regime.

New Zealand specifically excludes “livestock” and “goods consisting of any fine metal of any degree of purity” from the definition of second hand goods. Though CGST Act, 2017 does not define second hand goods in particular it is quite logical that metal scrap dealers will not be covered under margin scheme.

In an official statement, the Ministry of Finance said that Rule 32(5) of the Central Goods and Services Tax (CGST) Rules, 2017 has defined the margin scheme for the sale of second hand goods and empty bottles.

Rule 32(5) of the Central Goods and Services Tax (CGST) Rules, 2017 provides that 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 such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored. This is known as the margin scheme. 

As per rule 32(5), value of taxable supply for second hand dealer will be difference between Sale vale and purchase value. Where value is negative, GST will not be levied on such transactions. Here second hand goods mean goods as such or after minor processing does not change the nature. Dealer availing margin scheme is not allowed to take credit on its purchases.

How does the Margin Scheme affect GST on my overheads?

Purchases of second hand dealer may be from three different sources as follows

 Purchases from Unregistered dealer

1. Purchases from Registered dealer

Example 1: Purchases from Unregistered dealer

If Second hand dealer (Say ‘A’) purchases second hand goods from an unregistered dealer B. Since, dealer B is not registered, he will not charge GST on sales to A. In this case liability of payment will arise on A as per Section 9(4) of CGST Act, 2017.

But, as per notification no.10/2017-Central Tax (Rate), dated 28.06.2017 exempts Central Tax leviable on intra – State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods [who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5)] from any supplier, who is not registered. This has been done to avoid double taxation on the outward supplies made by such registered person, since such person operating under the Margin Scheme cannot avail input tax credit on the purchase of second hand goods.

 Example 2: Purchases from registered dealer

If second hand goods dealer here A, purchases goods from a registered dealer (say ‘C’), he will pay GST to C as mentioned on GST Invoice issued by ‘C’. Since, Dealer A is availing margin scheme he will not be able to avail credit of the same and GST will be added to the cost of such dealer. Hence, they would end up having more cash outflow and also lower profitability. In this case, dealer has to keep its selling prices well above the purchase price including GST paid on purchases.

 Thus, Margin Scheme can be availed of by any registered person dealing in buying and selling of second hand goods [including old and used empty bottles] and who satisfies the conditions as laid down in Rule 32(5) of the Central Goods and Services Tax Rules, 2017.

 What are the conditions for using the scheme?

 You don’t have to use the Margin Scheme: it’s optional.

If you decide to use it, there are a number of conditions you will have to meet. If you can’t meet all the conditions, you can’t use the scheme.

1. Person applying this scheme shall be dealing in sales and purchases of second hand goods. If a person sale his second hand goods but he is not in the business of such sale, he can apply Margin scheme

2. Goods shall be second hand and after purchase minor processing is allowed. But in this case nature of goods shall not be changed

3. Input tax credit shall not be availed. Even though goods are purchased from registered dealer, cenvat credit shall not be availed

What if I make sales under the normal GST rules as well?

As per my understanding, there is no such restriction. You can use the Margin Scheme for some of your sales and the normal rules for others. But, if you have sold second hand goods under the normal GST rules (that is, you have charged GST on the full selling price), you cannot go back and apply the Margin Scheme to that particular sale later.

How do I calculate my purchase price?

Your purchase price is everything which you had to pay for the second hand goods. You must not include any cost to you of bringing the vehicle to sale. Your purchase price does not include the cost of any repairs, refurbishment, accessories or your business overheads.

For example, if you purchase new parts and fit them to a car, you must not add the cost of those parts to the purchase price of the car. You must use the original price you paid for the car when you calculate the margin for the purposes of the scheme.

Remember: the Margin Scheme taxes the difference between what you paid for the vehicle and what you sold it for, not the overall profit you have made on it.

More clarity and circulars are awaited from government regarding whether scrap dealers are covered under this scheme and also about valuations.

CA Vaibhav J Samdani +919665 933598


Author Bio

Qualification: CA in Practice
Company: Sachin Ranbhise and Associates
Location: PUNE, Maharashtra, IN
Member Since: 30 Jul 2017 | Total Posts: 3

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9 responses to “GST: Sales and Purchases of Second Hand Goods”

  1. Sanjiv Kumar says:

    I wanted to start new business of re sailing of Used mobile. Kindly suggest weather i required GST Registration no or not.
    How much tax i spouse to paid on each sale. example: purchase Rs. 100/- & sale Rs. 110/- (10% profit margin).
    As i come to know from various blogs that under the “Margin Scheme” their is nil tax if sale price is lesser than purchase.
    Kindly suggest….

  2. shubham says:

    Why metal scrap dealer will not be included in rule 32(5)?

  3. Pushpender says:

    Dear Vaibhav, I have a similar query as Manish in 5 above above. It is gross injustice, if my company sells the old car to me at a depreciated value of Rs 1,75000/- , why will it attract 43% GST? Can we appeal it to govt. and do something about it. It just means, you and me cannot buy/sell car to each other as the tax rate is 43% as both of us are not registered…!!

  4. CA Priti Ag. Surana says:

    Great article. Most of my doubts got clear in this single article. Thanks.

  5. DEVANAND says:


  6. AJIT PATEL says:


  7. MAYUR ARORA says:

    What are the conditions for using the scheme?

    Condition 1 have error i think..

    If a person sale his second hand goods but he is not in the business of such sale, he can apply Margin scheme


    Please correct me if I am wrong.

    But thanks for sharing the article. Good Job

  8. Manish says:

    I am working with Idea Cellular Limited. We have a Buy your car service agreement between Idea and Myself. In the same the car was bought in the name of Idea cellular to be used by me. The EMIs were deducted from my salary.
    Now, I am to leave the company. The car’s principal amount remaining is 3.8 Lacs which I will pay. Then the company will transfer the car to me. The transfer shall happen as a gift of the amount(WDV of the car-3.8 Lacs).
    Neither the company nor me are registered as a second hand goods dealer.
    Will the sale of the car to me from the employer attract GST?

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