Supply of Old and Used Fixed Assets under GST

This article titled ‘Supply of Old and Used Fixed Assets under GST’ discusses all such aspects in regard of if such assets are supplied by the following persons.

1. A registered person;

2. An unregistered person;

3. A composition dealer;

4. An individual who sells his personal assets and

5. A person who deals in sale and purchase of second hand goods.

6. Rate of GST on old Motor Vehicles as per Notification No.8/2018 Central Tax (Rate) 

Q 1. A registered person who sells his old and used fixed assets.

If the registered person sells such assets on which the person has taken input tax credit then tax shall be paid according to section 18(6) of the CGST Act, 2017 read with rule 44(6). This matter may be understood by the following example.

For example, fixed asset purchased worth Rs. 100000/= in the month of July 2017 and input tax credit @ 18% i.e. Rs.18000/= had been taken in the month of July 2017. This fixed asset was sold out in the month of August 2019. The person has used this fixed asset from July 2017 to August 2019 i.e. for 26 months.

Useful Life of the Fixed asset is 5 years according to Rule 44(1)(b) i.e. 60 months. Remaining unused life of the Fixed asset is 34 months (60-26).

The Fixed asset has been sold for Rs.60000/= and tax charged Rs.10800/=.

Total Input Tax Availed	= Rs.18000/=
Useful Life of the Fixed asset	= 60 months
Period of Fixed asset Used	= 26 months
Unused period of Fixed asset	= 34 months
Tax on Pro rata basis for unused	= Rs.10200/=
period i.e.34 months (18000/60*34)

Since the tax Rs.10800/= charged on transaction value of the Fixed asset is more than the tax Rs.10200/= as calculated for unused period of the Fixed asset, therefore the higher amount of tax Rs.10800/= shall be paid.

In the above example if the supply of the Fixed asset is made for Rs.50000/= and tax Rs.9000/= be charged on this supply then higher amount of the tax Rs.10200/= calculated for unused period of the Fixed asset shall be paid in place of tax Rs.9000/= charged on transaction value of Rs.50000/=.

Supply of refractory bricks, moulds and dies, jigs and fixtures as scrap then tax shall be paid on transaction value determined under section 15. 

2. If the registered person sells Motor Vehicles then taxable value and rate of tax to be charged as per Notification No.8/2018 – Central Tax (Rate) dated 25-01-2018. The only condition to avail this notification is that the person had not availed input tax credit on such motor vehicle. The taxable value in this case shall be margin amount determined as under:

2.1 If the depreciation has been claimed on such vehicle then transaction value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply.

2.2 If the depreciation is not claimed by the person on such vehicle then the value that represents the margin of supplier shall be, the difference between the selling price and the purchase price.

2.3 If the margin in the above stated both cases is negative then it shall be ignored. Meaning thereby that the transaction value of such vehicle shall be zero.

For example, the depreciated value of the motor vehicle as on 31-03-2020 is Rs.150000.00 and the person supplies this motor vehicle at Rs.160000.00. The margin shall be Rs.10000.00 i.e. difference between the consideration received and the depreciated value. The tax shall be charged on Rs.10000.00 with rate prescribed under notification no.8/2018-Central Tax (Rate). List of such rate of tax has been provided below of this article.

In the above example if the motor vehicle is supplied at Rs.140000.00 then margin between consideration (140000.00) and depreciated value (150000.00) shall be -10000.00 which shall be ignored due to margin in negative value and no tax shall be charged.

Motor Vehicle purchased in Pre-GST period.

Whether the terms of notification no.8/2018 shall be applied on motor vehicles which were purchased in Pre-GST period. The answer is yes if the supplier had not availed input tax credit in pre-gst regime also. The circumstances when the notification shall not be applied, have been stated in para 2 of the notification. This para 2 is reproduced as under:

“This notification shall not apply, if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act, 2017, CENVAT as defined in CENVAT Credit Rules, 2004 or the input tax credit of Value Added Tax or any other taxes paid, on such goods.”

3. If the registered person sells fixed asset other than Motor Vehicle on which he had not availed input tax credit. The person had not taken input tax credit because of following reasons:

3.1 The fixed asset was used for supply of goods which are exempted under GST or

3.2 The person had not taken the input tax credit for any reason. 

Transaction Value, in all the above cases stated in paras 3.1 or 3.2 or in the case when the fixed asset was purchased during pre-GST regime, shall be the value on which value such asset is to be sold. Tax shall be charged on transaction value as per rate applicable to the asset to be sold.

What about input tax credit which had not been availed as per facts stated in para 3.1 and 3.2 

As per para 3.1 the person was not eligible to avail input tax credit because the asset was used for supply of exempted goods. Fixed Asset itself is not exempted goods. The Supplier shall have to charge tax on supply of such fixed asset when he sells it. The Supplier asks the question whether he can avail input tax credit now when he sells the asset on which he had not taken input tax credit due to asset was used for supply of exempted goods.

As per my opinion the answer is NO. There may be different opinions that some experts may say YES. Thus, it is a debatable agenda and clarification must be issued by the GST Council in this respect. The reader should take his own decision on this matter while consider provisions as stated in section 18(1)(d) of the CGST Act in this regard.

The section 18(1)(d) entitles to take input tax credit on capital goods when capital goods exclusively used for exempt supply becomes taxable supply. Such input tax credit shall be the amount after reducing proportionate input tax for period for which the said asset had been used for exempt supply of goods. My opinion is that input tax credit is to be allowed when capital goods is to be used for taxable supply of goods. If the said capital goods is to be sold out without further use for taxable supply of goods then the person can not avail input tax credit.

As per para 3.2 the person had not taken input tax credit on fixed asset purchased for any reason. The Fixed Asset is a taxable goods and the same (fixed asset) was being used for supply of taxable goods. The person sells such asset and asks whether can he claim input tax credit now?

Supply of Fixed Asset and claiming of input tax credit are both different terms. Sections 16, 17, 18 and other sections and rules shall apply for claiming of input 1tax credit. Section 16(4) allows the person to claim input tax credit maximum by due date of furnishing of the return for the month of September following the end of financial year to which such invoice pertains or furnishing of the relevant annual return, whichever is earlier. Thus, the person can claim input tax credit within stipulated period. If such period has elapsed, the person is not eligible to claim input tax credit. Therefore, if the asset is sold out within the period that had not been elapsed according to section 16(4) of the CGST Act then the person can claim input tax credit otherwise not.

Q2. An unregistered person who sells his old and used fixed assets.

An unregistered person can sell old and used fixed asset without charging any tax. But if by selling this asset he becomes liable for registration then he shall have to get register himself under the GST Law. He shall be liable for registration if his aggregate turnover exceeds turnover specified under section 22 of the CGST Act or he is required compulsory registration as per section 24 if he sells asset interstate.

Q3. A composition dealer who sells his old and used fixed assets. 

A composition dealer can sell old and used fixed assets. Now question arise about rate of tax to be charged on such asset. Whether rate of tax shall be the rate being appliable to such asset or the rate equal to the composition levy being paid by the composition dealer according to section 10 read with rule 7?

The Composition Dealer has to pay tax on the turnover in state or turnover in union territory. According to section 2(112) of the Act “turnover in State” or “turnover in Union territory” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Section 7(1)(a) of the Act says “Supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Supply terms include supply of regular of supply of goods or services or both and also include if fixed assets are sold. There is no such provision under the GST Law which excludes supply of fixed asset by the Composition Dealer from the regular supply being made by the Composition Dealer.

Thus, rate of tax be charged on supply of asset by the Composition Dealer shall be the rate equal to the composition levy being paid by the Composition Dealer on his regular supply of goods.  

Q4. An individual who sells his personal assets.

An individual, who is not doing any business, sells his personal assets whether the GST shall be charged on such asset or not. The answer is NO. Because one of the conditions for the term of “Supply” under the GST Law, according to section 7 of the Act, is that Supply is to be made or agreed to be made in the course or furtherance of the business. Since the person is not doing any business, therefore, GST tax shall not be charged on supply of such asset made by such person.

Q5. Supply of second hand goods by a person dealing in purchase and sales of second hand goods.

In this regard specific provisions have been framed by the Legislature under rule 32(5) of the CGST Rules, 2017. According to this rule – Taxable Value for supply of second hand goods shall be the margin value i.e. the difference between the selling price and the purchase price and where the margin value of such supply is negative, it shall be ignored. For example, a person purchases second hand refrigerator for Rs.3000.00. After some repairing the person sells it for Rs.4000.00. The taxable value (margin value) shall be Rs.1000.00 being difference between selling value and purchase value. Tax shall be charged on Rs.1000.00. Rate of tax on such supply of goods shall be the same as applicable to such goods in normal course.

To avail this margin value scheme the following conditions should be fulfilled: –

1. The Supplier should be registered under the GST;

2. The supply of goods shall be sold as such as it were purchased or after minor processing which does not change the nature of goods and

3. Where no input tax credit has been availed on the purchase of such goods.

Purchase value of goods repossessed from a defaulting borrower – 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.

Date of Purchase by Defaulting Borrower	Amount of Purchase	Date of Disposal	Qtrs. Including part qtr.between date of purchase and date of disposal	Value after reduce @ 5% for each qtr and part qtr.
01/04/2018	118000.00	31/03/2020	8	70800.00
01/04/2018	118000.00	01/04/2020	9	64900.00

Q6. Rate of GST on old Motor Vehicles as per notification no.8/2018-Central Tax (Rate)

Rate of Old & Used Motor Vehicles ( Nnotification no.8/2018-Central Tax (Rate)
S.No.	Chapter, Heading, Subheading or Tariff item	Description of Goods	Rate
1	8703	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. Explanation. – For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under	9%
2	8703	Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm Explanation. – For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under.	9%
3	8703	Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles. Explanation. – For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.	9%
4	87	All Old and used Vehicles other than those mentioned from S. No. 1 to S.No.3	6%

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To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is pkmgstupdate@gmail.com.