2024 (10) TMI 1420 - AAAR - GST

Margin scheme under Rule 32(5) applies to all second-hand goods, not just vehicles, but scrap materials don't qualify as second-hand goods.

The AAAR Rajasthan held that the margin scheme under Rule 32(5) of CGST Rules, 2017 is not limited to second-hand motor vehicles but applies to all ... Margin Scheme notified under Rule 32 (5) of the CGST Rules, 2017 - selling the old used Iron Scrap, used Lead Acid Batteries, old used Aluminium utensils & other Aluminium Scrap, old used brass utensils and other scrap, used old steel utensils scrap, old used scrap of copper, used waste plastic bags & used plastic PET bottles etc to manufacturers - whether the goods when sold outside the state or when sold within the state of Rajasthan qualifies under the Margin Scheme? Whether or not the goods other than second hand Motor vehicles as notified under the Notification No. 08/2018 -Central Tax (Rate) dated 25.01.2018 are eligible for margin scheme or not? - HELD THAT:- The Notification No. 8/2018-Central Tax (Rate) dated 25.01.2018 has not been issued under Rule 32 (5) of CGST Rules, 2017. GST rate in case of sale of second hand goods will be the same as applicable on original products/new product except in case of second hand /used motor vehicles on which different GST rate are specifically notified by the Government vide Notification No. 8/2018-Central Tax (Rate) dated 25.01.2018. The intention of Government to issue notification No. 8/2018-Central Tax (Rate) dated 25.01.2018 is not to limit Motor Vehicles as second hand goods to cover under margin scheme rather to give separate rate on sale of such second hand motor vehicles. Thus, we hold that the benefit of margin scheme is not limited to second hand Motor vehicles only but it is available to all other goods as well subject to condition that subject goods qualify as second hand goods. Distinction between second-hand goods and scrap - HELD THAT:- It is a settled principle of jurisprudence that when the words of a statute are unambiguous and only one reasonable meaning can be given to it, then the courts are bound to give effect to that meaning. Such words have to be interpreted in their natural and ordinary sense. It is evident from the above that the key difference lies in the usability of the items; scrap requires processing to be useful again, whereas second hand goods are ready for immediate use by a new owner. Additionally, the value of scrap is generally determined by the material’s potential for recycling and reuse, while the value of second hand goods is influenced by their condition, brand, and demand in the used goods market. The reference to second hand goods in the margin money scheme is to such goods whose pre & post sale/disposal usage remains the same. For instance a second hand car shall be used in the same way as a new car. Used jewellery shall be worn the same way as new jewellery. Thus mere change of ownership is not sufficient to bring the term them as second hand goods & under the purview of Rule 32 (5) of the CGST Rules, 2017. There is one more requirement i.e. continuity of usage. The judgement & references relied upon the appellant conform to the above test. However, the items which are subject matter of the Ruling do not qualify the test. The items in question fall within the realm of scrap not second hand goods, rendering them ineligible to operate under the margin scheme as per Rule 32 (5) of the CGST Rules, 2017, in so far as the goods are considered scrap. Whether they are eligible for benefit of Margin Scheme for intra state supply or inter-state supply of goods? - HELD THAT:- The Margin Scheme under the CGST Rules, 2017, specifically Rule 32 (5), is designed to prevent double taxation on the supply of second-hand goods. It allows the GST to be levied only on the margin, which is the difference between the selling price and the purchase price of the goods. However, for goods to qualify under this scheme, they must be second-hand, used, or have undergone minor processing that does not change their nature. Additionally, the input tax credit should not have been claimed on these goods. Since the appellant’s goods do not meet the criteria of second-hand goods, they are not eligible for the benefits of the Margin Scheme for either intra-state or inter-state supply of goods. This interpretation is congruent with the provisions and the intent of the GST framework to facilitate a fair taxation process while avoiding undue tax burdens on the circulation of second-hand goods. Snce the appellant is not eligible to operate under margin scheme in term of Rule 32 (5) of the CGST Rules, 2017 with corresponding provisions of SGST Rules, 2017 as the goods are not qualified as second hand goods, thus the benefit is neither available for intra state supply of goods nor inter-state supply of goods. Issues Involved:1. Eligibility of goods under the Margin Scheme as per Rule 32(5) of the CGST Rules, 2017.2. Applicability of the Margin Scheme for intra-state and inter-state supplies.3. Interpretation of 'second-hand goods' versus 'scrap.'4. Consideration of principles of natural justice in the AAR's decision-making process.Issue-wise Detailed Analysis:1. Eligibility of Goods under the Margin Scheme:The primary issue was whether the appellant's goods, including old used iron scrap, used lead acid batteries, and other similar items, qualify under the Margin Scheme as per Rule 32(5) of the CGST Rules, 2017. The AAR, Rajasthan, initially ruled that these goods do not qualify as 'second-hand goods' but rather as 'scrap,' which are intended for recycling rather than direct reuse. The appellant contested this interpretation, arguing that the goods should be considered second-hand since they are purchased from unregistered owners and sold without processing. However, the appellate authority upheld the AAR's decision, emphasizing that the goods in question are scrap, as they require processing to be useful again, unlike second-hand goods, which retain their original form and function.2. Applicability of the Margin Scheme for Intra-state and Inter-state Supplies:The appellant sought clarity on whether the Margin Scheme is applicable for both intra-state and inter-state supplies. The AAR concluded that since the appellant's goods do not qualify as second-hand goods, they are not eligible for the Margin Scheme benefits for either type of supply. The appellate authority agreed, stating that the scheme is designed to prevent double taxation on second-hand goods, which must retain their original nature and not have claimed input tax credit. Therefore, the appellant's goods, classified as scrap, do not meet the criteria for the Margin Scheme.3. Interpretation of 'Second-hand Goods' versus 'Scrap':A key point of contention was the distinction between second-hand goods and scrap. The appellate authority clarified that second-hand goods are items previously owned and used but still in usable condition, whereas scrap refers to waste material intended for recycling. The authority emphasized that the usability and condition of the goods are crucial in determining their classification. The appellant's goods, intended for recycling by manufacturers, were deemed scrap, not second-hand goods, and thus ineligible for the Margin Scheme.4. Consideration of Principles of Natural Justice:The appellant argued that the AAR violated principles of natural justice by not considering their submissions. However, the appellate authority found that the AAR had provided the appellant with a fair opportunity to present their case, including a personal hearing. The authority concluded that the AAR had duly considered the appellant's written and oral submissions, and there was no violation of natural justice.Conclusion:The appellate authority upheld the AAR's ruling that the appellant's goods are not eligible for the Margin Scheme under Rule 32(5) of the CGST Rules, 2017, as they are classified as scrap rather than second-hand goods. Consequently, the appellant cannot avail the benefits of the Margin Scheme for either intra-state or inter-state supplies. The authority also affirmed that the AAR had adhered to principles of natural justice in its proceedings.