Used iron scrap, batteries, aluminum utensils don't qualify as second hand goods under Rule 32(5) CGST Rules 2017

AAR Rajasthan held that used iron scrap, lead acid batteries, aluminum utensils, brass utensils, steel utensils, copper scrap, waste plastic bags, and PET bottles do not qualify as "second hand goods" under the Margin Scheme provisions of Rule 32(5) of CGST Rules, 2017. The authority determined these items are scrap materials consumed/melted for manufacturing new products, changing their nature. Consequently, the applicant cannot operate under the Margin Scheme for either intra-state or inter-state supplies.

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Issues Involved
1. Applicability of the Margin Scheme under Rule 32(5) of the CGST Rules, 2017 to the sale of various types of scrap.
2. Applicability of the Margin Scheme for both intra-state and inter-state supplies.

Detailed Analysis

Issue 1: Applicability of the Margin Scheme under Rule 32(5) of the CGST Rules, 2017

Applicant's Submission:
- The applicant, registered under GST, intends to start a business selling various types of scrap, including used iron scrap, lead acid batteries, aluminum utensils, brass utensils, steel utensils, copper scrap, waste plastic bags, and PET bottles.
- The applicant plans to purchase these items from unregistered suppliers and sell them to manufacturers, charging GST on the margin between the selling price and the purchase price, as per Rule 32(5) of the CGST Rules, 2017.
- The applicant argues that these items qualify as second-hand goods and thus fall under the Margin Scheme to avoid double taxation.

Jurisdictional Officer's Comments:
- The officer contends that the items in question are not second-hand goods but scrap, which are used as raw materials in manufacturing new items, thereby changing their nature.
- The officer refers to Notification No. 8/2018-Central Tax (Rate), which clarifies that the Margin Scheme is applicable only to old and used motor vehicles, not to the types of scrap mentioned by the applicant.

Findings and Conclusion:
- The Authority examined the facts, supporting documents, and submissions made by both the applicant and the jurisdictional officer.
- Rule 32(5) of the CGST Rules, 2017, specifies that the Margin Scheme applies to second-hand goods, defined in common trade parlance as any new or used property disposed of by its original owner.
- The items dealt with by the applicant, such as used iron scrap, lead acid batteries, aluminum utensils, etc., are considered scrap rather than second-hand goods because they are to be consumed or melted to manufacture new items, thus changing their nature.
- Therefore, these items do not qualify as second-hand goods, and the applicant is not eligible to operate under the Margin Scheme.

Ruling:
- The applicant is not covered under the Margin Scheme notified under Rule 32(5) of the CGST Rules, 2017.

Issue 2: Applicability of the Margin Scheme for Intra-State and Inter-State Supplies

Applicant's Interpretation:
- The applicant argues that Rule 32(5) of the CGST Rules, 2017, should apply to both intra-state and inter-state supplies, as per Section 20 of the IGST Act, 2017, which states that the provisions of the CGST Act shall apply mutatis mutandis to the IGST Act.

Findings and Conclusion:
- Since the items dealt with by the applicant do not qualify as second-hand goods, the Margin Scheme is not applicable.
- Consequently, the benefit of the Margin Scheme is not available for either intra-state or inter-state supplies of the goods mentioned.

Ruling:
- The benefit of the Margin Scheme notified under Rule 32(5) of the CGST Rules, 2017, is not available to the applicant for either intra-state or inter-state supply of goods.

Final Ruling
1. The applicant is not covered under the Margin Scheme notified under Rule 32(5) of the CGST Rules, 2017.
2. The benefit of the Margin Scheme is not available for the intra-state or inter-state supply of the goods mentioned by the applicant.

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