Dealing in Second hand goods

[Kumar Kedia]

My client started a new business wherein he purchases the old vehicle from bank in an auction Bank gives release letter in the name of my client and he then finds the customer for the vehicle and sell it to the end customer. However, the RC of the vehicle is directly transferred from Bank to the end customer. In such a case, where the title of the goods is not transferred to my client as per Motor vehicle Act. Can the valuation be made under Rule 32(5).

[Rajagopalan Ranganathan]

Sir,

Rule 32 (5) of CGST rules stipulates that-

Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored :

Provided that 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.

In your case the proviso is applicable and hence the value is to be arrived at according to the proviso. Rule 32 (5) does not stipulate the condition that title should be transferred to the repossessor before the second hand goods is sold to the prospective customer.

[Kumar Kedia]

Respected Sir,

Without transfer of title, can it be termed as sale of goods?

[DR.MARIAPPAN GOVINDARAJAN]

In my view transfer of title is required.

[Kumar Kedia]

Sir,

Will the income of my client be treated as commission income and what happens when the client suffers the loss. How to classify this income

[Venkataprasad Pasupuleti]

Title can be transferred without RTA registration. There were several cases holding that legal ownership is different from the registration under RTA laws. Hence, the dealer in your case can avail the valuation under rule 32(5).

[Sandeep Garg]

Dear Kumar Ji,

The sub-rule (5) of Rule 32 of the CGST Rules, 2017 deals with valuation of second hand goods and states that-

“where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.”

Notification No.10/2017-Central Tax (Rate), dated 28th June, 2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of rule 32 of the CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.

The tax payable under Section 9 (4) of the CGST Act, 2017 on procurement being made from any unregistered person was being exempted. Moreover, on account of amendment in Section 9(4) of the Act, it is no longer relevant for the present purpose.

In the trade, second hand sales is also possible and in export import procedure also. A person dealing with the second hand goods is allowed to pay the tax on margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.

So, as per my opinion, the above sub-rule will be applicable in your respective case.

AI Summary

Valuation of second hand goods under Rule 32(5) allows margin based GST valuation even without transfer of vehicle registration.
Rule 32(5) permits valuation of supplies by dealers in second hand goods on a margin basis where no input tax credit was taken, with negative margins ignored. The proviso deeming purchase value for repossessed goods applies to bank repossessed vehicles sold after auction. Transfer of registration under motor vehicle law is not a stipulated precondition for applying the margin scheme; legal ownership can differ from registration, enabling dealers to use Rule 32(5). Notification exemptions complement the scheme to prevent double taxation on resale of used goods.