In re Ms. Shambhu Traders Pvt Ltd. (GST AAR Rajasthan)
1. The used lead acid batteries qualify to be second hand goods. Accordingly, the Applicant dealer is entitled to operate under the Margin Scheme in respect of the used lead acid batteries.
2. The query raised by the applicant is not specified in Section 97(2) of CGST Act/RGST Act, 2017, therefore, no advance ruling is given.
3. The Rule 32(5) of the CGST Rules, 2017 which provides for Margin Scheme in case of intra-state supplies shall also be applicable in case of inter-state supplies. The Applicant is entitled to make inter-state supplies of used lead acid batteries while operating under the Margin Scheme.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING RAJASTHAN
The issue raised by M/s Shambhu Traders Private Limited situated at 41, Large Industrial Area, Kota, Rajasthan 324003 (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (e), which is given as under :
e. determination of the liability to pay tax on any goods or services or both
Further, the applicant being a registered person (GSTIN is 08AAFCS9741J1ZU, as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
1. SUBMISSION AND INTERPRETATION OF THE APPLICANT:
a. The Applicant is engaged in the business of selling used lead acid batteries to various manufacturers.
b. The Applicant is registered with the jurisdictional authorities under the Rajasthan Goods and Service Tax Act, 2017 (“Rajasthan GST Act, 2017”) bearing GSTIN No. 08AAFCS9741J1ZU.
c. The Applicant is operating under the Margin Scheme notified under Rule 32(5) of the Central Goods and Service Tax Rules, 2017 (“CGST Rules”).
d. The Applicant purchases these used lead acid batteries from unregistered suppliers in small quantity [50 to 100 kg approximately]. The unregistered suppliers may be located in the same State as the dealers or even a different State. On purchase of used lead acid batteries from unregistered suppliers, the Applicant subsequently sells them to various manufacturers and charges GST on the difference between the sale price and purchase price of lead acid batteries in accordance with Rule 32(5) of the CGST Rules.
e. It is in this aforesaid background, the Applicant seeks determination on the question as to whether the used lead acid batteries qualify as ‘second hand goods’ and thus covered under the Margin Scheme notified under Rule 32(5) of the CGST Rules, 2017.
f. Applicant’s interpretation with respect to first question
1. It is submitted that normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing in such goods is allowed to pay tax on the margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.
2. Rule 32(5) CGST Rules, 2017 specifies 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. The relevant extract of Section 32(5) of the CGST Rules, 2017 is reproduced below:
“(5) 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:
Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. “
3. As provided in Rule 32(5) of the CGST Rules, 2017, the margin scheme is available in case of purchase and subsequent sale of second hand goods. In the present case, the Applicant is primarily engaged in the activity of procuring the second hand lead acid batteries’ (hereinafter referred to as ‘batteries’) in small quantities (50 to 100kg approx.) from various unregistered suppliers situated within the State of Rajasthan and outside Rajasthan.
4. For goods to qualify as second hand goods as per Rule 32(5) of the CGST Rules, 2017 such goods need be (1) used goods as such or goods after minor processing that does not change the nature of goods (2) goods on which no Input Tax Credit has been availed.
5. It is submitted that used lead acid batteries are used goods and no processing is done on such goods. Therefore, these used lead acid batteries qualify as second hand goods in as much as these goods are ‘used goods as such’. Further, the Applicant does not avail Input Tax Credit on such used lead acid batteries.
6. In this regard, reference may also be placed on the Press Release dated 15th July, 2017 of the GST Council wherein it has been clarified as under in respect of old and used bottles:
Doubts have been raised regarding the applicability of the margin scheme under GST for dealers in second hand goods in general and for dealers in old and used empty bottles in particular.
2. Rule 32(5) of the Central Goods and Services Tax 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.
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4. 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.
That the aforesaid clarification issued in respect of the used bottles shall squarely be applicable in respect of the used lead acid batteries as just like used bottles no processing is done on the used lead acid batteries. Therefore, in the Applicant’s view, these used lead acid batteries qualify to be second hand goods. Accordingly, the Applicant dealer is entitled to operate under the Margin Scheme in respect of the used lead acid batteries.
g. Applicant’s interpretation with respect to second question:-
When the Applicant is selling goods under the Margin Scheme notified under Rule 32(5) of the Central Goods and Service Tax Rules, 2017. The Tax on Outward Supply under the Margin Scheme would be qualified under which of the following heading in GSTR-3B
a. As per Section 2(108) of the CGST Act -Taxable Supplies means a supply of goods or services or both which is leviable to tax under this act. Accordingly all the supply of goods and services except the following shall be taxable supply:-
