A guide on Taxability of Motor Vehicles under GST

1. Inward Side- Input Tax Credit (ITC)  of / In Respect of Motor Vehicles

SECTION 17(5) OF CGST ACT – Under section 17(5) of CGST Act, there are certain supplies on which input tax credit under GST is not available. These supplies can also be said as blocked credit.

Section 17(5) of the Central Goods and Services Act, 2017 provides that input tax credit in respect of the following shall not be available-

(a) Motor vehicles and other conveyances except when they are used-

(i) For making the following taxable supplies, namely-

(A) Further supply of such vehicles or conveyances; or

(B) Transportation of passengers; or

(C) Imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) For transportation of goods;

Examples where credit of motor vehicles can be availed: Dealer of vehicles, cab providers, trucks/vehicles used by factories for transportation of goods.

It is important to understand that there is nothing mentioned about whether the credit would be available on purchase of motor vehicle. Since, the act provides that the credit is not available on motor vehicles it can be concluded that all input tax credit in relation to motor vehicle cannot be claimed except used in the supplies as mentioned above.

Part 2 – Outward Side

2.1 GST Rates on Motor Vehicles ( updated till 30-11-17)

2.2 Compensation Cess on Motor Vehicles (updated till 30–11–17)

2.3 GST Tax Rate on Sale of Old and 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:

Note: Government also exempted the Cess applicable on sale of Used vehicle through Notification 1/2018 Compensation Cess Rate

2.4 Valuation of Old or Used car for GST Calculation

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 ignored.

2. 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;

2.5 GST Tax Rates for Services Related to Motor Vehicles Business

2.5.1 For Passenger Transport

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. – RATE OF TAX 5%

Provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business (i.e. service procured from another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle), has not been taken. [Please refer to Explanation no. (iv)]

Provided that the Assessee opting to pay tax @ 12% under this entry shall, thenceforth, be liable to pay central tax @ 12% on all the services of Pessenger Transport supplied by it., if Assessee wish to take full ITC

Passenger transport services other than above. – . – RATE OF TAX 18%

2.5.2 For Goods Transport

Q 1. What service of transportation of goods is exempt under GST?

Services by way of transportation of goods are exempted:

(a) by road except the services of:

(i) a goods transportation agency;

(ii) a courier agency

(b) by inland waterways.

Therefore, the service of transportation of goods by road continue to be exempt even under the GST regime. GST is applicable only on goods transport agency, GTA.

Q2. What is the rate of GST on GTA?

*As per Notification No. 20/2017-Central Tax (Rate) 22nd August, 2017

** As per Notification No. 32/2017- Central Tax (Rate) dated 13th October, 2017

Q 3 What is RCM in case GTA ?

Normally Tax is charged & collected by Supplier of Service provider But in case of GTA , Recipient is liable to discharge TAX LIABLITY UNDER RCM. Pursuant to the enabling provision stated above, on 28 June 2017 the government specified categories of persons responsible for paying GST under the reverse charge mechanism.

These categories include:

(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948)

(b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India

(c) any co-operative society established by or under any law

(d) any person registered under the CGST Act, the Integrated GST (IGST) Act, the State GST (SGST) Act, or the Union Territory GST (UTGST) Act

(e) anybody corporate established, by or under any law

(f) any partnership firm whether registered or not under any law including association of persons

(g) any casual taxable person

Q 4. Who will pay under Reverse Charge?

As per Notification No. 13/2017- Central Tax dated 28/06/2017 the person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the receiver of service.

Payment is by sender

If the supplier of goods (consignor) pays the GTA, then the sender will be treated as the recipient. If he belongs to the category of persons above then he will pay GST on reverse charge basis.

Payment by Receiver

If the liability of freight payment lies with the receiver (Consignee), then the receiver of goods will be treated as a receiver of transportation services. If he belongs to any of the above category of persons, then he will pay GST on reverse charge basis.

3. Various Scenarios to Determine Who is Liable to pay GST in case of a GTA

** GTA services to an unregistered person is exempted as per Notification No. 32/2017- Central Tax (Rate) dated 13th October 2017