GST is levied on any activity that falls under the ambit of ‘Supply’ as per section 7 of CGST act, normally the GST is charged on the transaction value of the goods as determined by applying sec 15 of CGST act. However, in respect of second hand goods, a person dealing is such goods may be 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.
Category of person to whom it is applicable:-
To a person dealing in buying and selling of second hand goods only on satisfying the conditions given in rule specified below.
Valuation of Second hand goods:-
As per Rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second hand 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 purchase value of goods repossessed from a unregistered defaulting borrower
The proviso to the above rule further provides that in case of the purchase value of goods repossessed from a unregistered defaulting borrower, 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.
Exemption – Inward supply of second hand goods
In this regard, Notification No.10/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of rule 32 of the CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.
|1. XYZ pvt ltd Company sold car purchased in year 2011 on which it has claimed depreciation as per Income tax act. Determine the value to be taken for computation of margin to be considered as value of supply.|
Legal provision- Rule 32 of CGST rules read with Notification no 8/2018 – CT rate dated 25.01.2018, in case of sale of motor vehicle, GST would be applicable on the margin of the supplier and not on the amount of consideration received for such supply.
Discussion: – For the purpose of computing the margin amount, as per explanation (i) of the said notification above in case the registered person has claimed depreciation under sec 32 of Income tax act, 1961 on the said goods the difference between the consideration received for supply & the depreciated value of such goods as on date of supply will be the margin. Where the margin arrives to be negative, it shall be ignored.
Thus for the purpose of calculating the margin amount the depreciated value to be taken will be as per Income tax act as given in the notification.
|2. Mr X a 2nd hand car dealer purchases from Mr Raj and further sells the very same car to Mr Harsh after painting and renovation. The purchase price is Rs 3, 00,000 whereas the sale price is Rs 3, 50,000. Mr X has not taken input tax credit paid on purchase of such goods. Determine the value of supply as per GST|
|Solution:- As per Rule 32(5) of CGST Rules, 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,
Thus, The value of supply shall be the difference between the selling price and the purchase price i.e. Rs 50,000 ( Rs 3,50,000 – Rs 3,00,000) as per GST Act.
|3. Mr Rahul has taken a loan on 01-09-2017 from Smart ltd. worth of Rs 5,00,000 and he purchased a Swift Car. He defaulted in paying the loan amount and subsequently the lending company repossessed the Swift Car from Mr Rahul on 01.04.2019. The said goods were sold by the company on 05.06.2019. Determine the purchase value for lending company & also the value of supply for levy of GST?|
|Solution :- As per proviso to Rule 32(5) of CGST rules, 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.
Thus, in the given case purchase value for lending company will be Rs 3, 00,000 (Rs 5, 00,000 – 5% per quarter i.e. Sept 2017 to June 2019 i.e. 8 quarters).
Smart ltd will sell the car under his possession. If the sale price of the car is above Rs 3,00,000 say Rs 5,25,000. Smart ltd will be liable to pay GST on Rs 2,25,000 ( Rs 5,25,000 – 3,00,000).