Service tax or VAT

[Pooja Sukhija]

Hi Team,

We have started a new business wherein we procure second hand clothes from people and sell it. Below are the steps involved in a transaction to give you a brief idea about our model:

1. Potential seller to give us the basic details of the garment like the Original price of the garment, condition of the garment, brand and pictures of the garment
2. If the garment is in fashion and in a good condition, we send a confirmation to the seller along with a suggested selling price.
3. Post approval from the seller, the seller couriers us the garments and the garment is collected on approval basis
4. After receiving, the garment is thoroughly quality checked, dry cleaned and photos are clicked and uploaded to the website
5. Once the garment is sold, the amount is transferred to the seller post deducting our commission

We do not have ownership of the garment at any stage. Would we be taxed for VAT or Service tax and how much? We have registered ourselves as a partnership firm and are starting a website soon.

Thank you in anticipation!!

AI Summary

Second-Hand Clothing Business Must Pay Service Tax on Commission, Not VAT, as Intermediary Without Ownership Transfer A business involving the sale of second-hand clothes raised a query about whether they are liable for VAT or service tax. The business model involves acting as an intermediary between sellers and buyers without taking ownership of the garments. A respondent clarified that since the business does not involve the transfer of property, it does not fall under 'Trading of goods' but is instead considered a service. Therefore, the business must pay service tax on the commission earned. The respondent also offered further assistance and emphasized the importance of understanding ownership in such transactions.