2022 (5) TMI 1183 - AAR - GST

Auction House's Second-Hand Paintings Attract 12% GST on Margin Only Under Rule 32(5), Not Full Value

The AAR ruled that second-hand paintings traded by the auction house fall under Heading 9701 of GST Tariff, attracting 12% GST rate. Significantly, the ... Classification of paintings under Heading 9701 - Application of Rule 32(5) of the CGST Rules (taxation of margin on second hand goods) - Treatment where input tax credit is not availed on purchase of goods - Advance ruling reliance on prior AAR decisionClassification of paintings under Heading 9701 - Schedule II Entry No. 236 - Classification of second hand or used paintings - HELD THAT: - The Authority examined the nature of the goods sold by the applicant and followed the earlier ruling of this Authority in the Astaguru Auction House matter. Having found that the goods in question are paintings executed entirely by hand and fall within the description for paintings (as identified by the applicant), the Authority concluded that such paintings are classifiable under Heading 9701 of the GST Tariff. The Authority did not find grounds to depart from its prior determination in the similar earlier case and applied the same classification to the instant facts. [Paras 5]Paintings sold by the applicant are classifiable under Heading 9701.Application of Rule 32(5) of the CGST Rules (taxation of margin on second hand goods) - Treatment where input tax credit is not availed on purchase of goods - Advance ruling reliance on prior AAR decision - Whether Rule 32(5) of the CGST Rules applies for determination of tax liability on sale of second hand paintings - HELD THAT: - The Authority noted the applicant's factual position that it purchases second hand paintings and does not avail input tax credit on those purchases. Relying on the prior AAR decision involving similar facts, and observing no reason to deviate, the Authority held that Rule 32(5) of the CGST Rules (the margin scheme for second hand goods where no ITC is taken) is applicable. Consequently, tax liability on sale of such second hand paintings is to be determined by applying Rule 32(5), i.e., tax on the difference between selling price and purchase price, with negative value to be ignored as per the rule. [Paras 5]Rule 32(5) of the CGST Rules is applicable to the applicant in respect of second hand paintings purchased and sold by it, where no input tax credit has been availed.Final Conclusion: The Authority ruled that the second hand paintings dealt with by the applicant are classifiable under Heading 9701 and that, since no input tax credit is availed on their purchase, the margin scheme in Rule 32(5) of the CGST Rules applies so that tax is leviable on the difference between selling and purchase price. Issues:1. Classification of second hand or used 'Paintings'2. Application of Rule 32(5) of CGST & MGST Rules, 2017 for tax liability determination on the sale of second hand or used 'Paintings'Classification of second hand or used 'Paintings':The applicant, M/s. Saffron Art Private Limited, sought an advance ruling on the classification of second hand or used 'Paintings' under the GST Tariff. The applicant procures 'Paintings' on approval basis from both registered and unregistered persons and sells them through online auctions. The applicant argued that the 'Paintings' fall under Schedule II Entry No. 236 Chapter heading 9701, attracting tax at the specified rate. The applicant does not avail input tax credit on these purchases. The Authority noted a previous ruling where a similar case was decided, classifying 'Paintings' under Heading 9701 and imposing a GST rate of 12%. Given the applicant's business model of dealing exclusively in second hand paintings without availing input tax credit, the Authority found the provisions of Rule 32(5) of CGST Rules applicable.Application of Rule 32(5) of CGST & MGST Rules, 2017:The applicant applied Rule 32(5) of CGST & MGST Rules, 2017 for determining the tax liability on the sale of second hand or used 'Paintings'. The rule requires tax payment on the difference between the selling price and the purchase price, disregarding any negative value. The Authority referenced a previous ruling involving a similar scenario where the Rule 32(5) provisions were deemed applicable. In the current case, as the applicant exclusively deals in second hand paintings without availing input tax credit, the Authority confirmed the applicability of Rule 32(5) of CGST Rules for determining the tax liability on the sale of second hand paintings purchased and sold by the applicant.The Authority, consisting of Shri. Rajiv Magoo and Shri. T. R. Ramnani, Member, after reviewing the facts, documents, and submissions, upheld the classification of 'Paintings' under Heading 9701 of the GST Tariff. Additionally, the Authority affirmed the application of Rule 32(5) of CGST Rules for determining the tax liability on the sale of second hand or used 'Paintings' by the applicant. The order clarified that the applicant can apply Rule 32(5) of CGST Rules for second hand paintings purchased and sold by them.