Sale of used car to employees by company

[Priyesh Mamnani]

Suppose Company X is purchasing car for employees at ₹ 100/- . It pays ₹ 85/- by itself and recovering ₹ 15/- from employees at the time of purchase.Company records cars in it's fixed asset at ₹ 85/- only. Now after 6 years company sold the car to employees at ₹ 10 /- and transfer the ownership to employees. So what will be the transaction value for company at the time of sale? ₹ 15 paid earlier at the time of purchase has to be included or not? Whether the company has to pay the tax on ₹ 15/- recovered from employees at the time of purchase?

[Brijesh Thakar]

Company need to pay GST on ₹ 15 recovered from employees at the time of purchase. It may be considered as consideration for supply of service for use of car by company to employees.

As company has already paid tax on the ₹ 15 recovered earlier there does not arise question of adding it again at the time of sale of car. At the time of sale of car, only ₹ 10 shall be taxable. I have assumed that no ITC of the car is taken at the time of purchase.

[ABHISHEK TRIPATHI]

Dear Priyesh Mamnani,

1. I don’t think the transaction is leviable to GST because it is not in the course or furtherance of business (Not applicable if your company is in the business of selling old cars). However, in your case, you have capitalized it. Then it might fall under Entry 4(a) to Schedule II. Entry reproduced hereinbelow:

4. Transfer of business assets (a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

Thus, it might be a supply of goods.

2. You may use NN 8/2018 -Central Tax (Rate) dated 25.01.2018, valuation is on the margin of supply. Make sure your transaction value (i.e. INR 10) shouldn’t be so low that the department may come and challenge that on the grounds of open market value. If the department challenges the same, you can take the benefit of INR 15 already paid for arriving at the open market value [refer valuation rule 2 or Rule 28] though it is margin of supply for valuation, still department may issue the notice w.r.t. OMV.

3. Going 6 years back, you cannot pay GST on INR 15.

[tarang kothari]

Issue ID : 117138

The Sale of used car valuation is governed by the notification 8/2018 ,the car is in the fixed assets block and the same depreciable assets . As per the said notificatigon ,in case of depreciable assets, Margin of supply shall be difference between Sale consideration and Written down Value and tax to be calculated on such Margin, and where the margin of such supply is negative, it shall be ignored. So WDV as per income tax (which is arrived at considering ₹ 85 less depreciation in books )and Sales price is required to be considered. and even in this case 6 year is pre GST period and their is no question of taking ITC pre GST . So no need to consider Pre GST amount received ₹ 15 from employee.

CA Tarang R Kothari

AI Summary

GST valuation: margin scheme applies to sale of depreciable business assets; taxable amount based on margin not earlier recoveries.
The transfer may be taxable as a supply of business assets, but valuation for a depreciable asset follows the margin scheme: taxable amount equals the difference between sale consideration and written down value (WDV) per company books; earlier amounts recovered at initial purchase that were in a pre-GST period or already taxed need not be included again, and negative margins are ignored, subject to challenge on open market value.