GST paid on margin of car sale

[KARAN VERMA]

Sir, in case of second hand car sale, if there is profit to seller, then he is liable to pay GST on @18 % on such profit amount i.e sale price less WDV.

My question is whether I can assume that such profit amount is inclusive of GST and calculate GST with valuation rule profit amount X 18% (118%).

[Shilpi Jain]

Yes. Where there is no GST charged and collected separately from the customer, the amount receved can be considered to be inclusve of GST.

[KASTURI SETHI]

RULE 35. Value of supply inclusive of Integrated tax, Central tax, State tax, Union territory tax.- Where the value of supply is inclusive of Integrated tax or, as the case may be, Central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner, namely, -

Tax amount = (Value inclusive of taxes × tax rate in % of IGST or, as the case may be, CGST, SGST or UTGST) ÷ (100 + sum of tax rates, as applicable, in %).

This rule does not reflect that the value is deemed to be inclusive of GST. In other words, the tax payer will have to produce documentary evidence to the effect that the amount of consideration for determination of GST liability is factually inclusive of GST otherwise cum-tax benefit will not be admissible.

[KASTURI SETHI]

One case law pertaining to Service Tax law in the case of N.V.Marketing Pvt. Ltd Vs. Commissioner, ST , Delhi-1 reported as 2017 (11) TMI 1406 - CESTAT NEW DELHI is worth reading . Relevant para is extracted below :-

"8. Regarding the claim of the appellant for recalculation of tax liability considering the value as cum-tax value, we note that the provisions of Section 67(2) are very clear to the effect that gross amount charged by the service provider should be inclusive of service tax payable, to consider such amount for backward calculation. In the absence of any evidence to the effect that the amount of consideration now taken up for tax liability is inclusive of service tax in terms of an arrangement or documentation, we note that the findings of the Original Authority is correct in this regard. On the question of penalties also, we note that the Original Authority has imposed penalty only under Sections 76 and 77 and not under Section 78. On perusal of the impugned order, we find no reason to interfere with the findings."

[Ganeshan Kalyani]

Generally if GST not collected separately then it is worked out as : sale value x 18 /118.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I agree with your views/words,"Generally-----------". But if we compare the languages of both i.e. Section 67(2) of Finance Act, 1994 and Rule 35 of CGST Rules, 2017, you will find the difference between the two legal positions. Now situation is different from the earlier one that existed in pre-GST era.

Waiting for your comments please.

[Shilpi Jain]

This case N.V.Marketing Pvt. Ltd Vs. Commissioner, ST , Delhi-1 reported as 2017 (11) TMI 1406 - seems is pending before the Supreme Court.

In this case [Commissioner v. Advantage Media Consultant - 2008 (10) TMI 570 - SC ORDER] it was held that cum tax benefit will be available if ST not collected from customer.

The party was rendering Advertising Agency service and Service tax was not collected for services rendered to government agencies. It held that Service tax being an indirect tax, was borne by consumer of goods/services and the same was collected by assessee and remitted to government and total receipts for rendering services should be treated as inclusive of Service tax due to be paid by ultimate customer unless Service tax was paid separately by customer. The Tribunal had noted that cum-tax value has been incorporated in Section 67 of Finance Act, 1994 vide amendments made subsequently.

Another case Professional Couriers v. Commissioner - 2013 (1) TMI 297 - CESTAT MUMBAI- This is pending before Bom HC

The Appellate Tribunal in its impugned order had held that adjudicating authority while confirming the demand did not grant cum-duty benefit. As assessee has not collected Service Tax from recipient of services, entire consideration received has to be treated as cum-tax.

The position however was different under the Central Excise and Salt Act - section 4(4)(d)(ii) as also seen from the SC case of AMRIT AGRO INDUSTRIES LTD 2007 (3) TMI 14 - SUPREME COURT.

So looks like the value can be considered as cum-tax even if it cannot be shown that the price is inclusive of taxes.

However, to be on safer side, it is always better to mention that the price includes applicable taxes in order to avail the cum tax benefit without much dispute.

[Shilpi Jain]

Thanks to Kasturi sir for highlighting the possible dispute with regard to this issue.

[KASTURI SETHI]

Madam Shilpi Jain,

I am also thankful to you for being receptive on the issue involved.

AI Summary

Cum-tax valuation: treat secondhand car sale profit as GST-inclusive when tax not separately charged, subject to evidential proof. Where GST is not separately charged on resale of a second hand car, the seller may treat the received consideration as GST inclusive and use Rule 35's backward calculation to extract tax, but Rule 35 requires documentary evidence that the price was agreed to be inclusive of tax and authorities will scrutinise such proof before admitting the cum tax benefit.