SALE OF MODIFIED COMMERCIAL VEHICLE

[Guest]

RESPECTED EXPERTS,

MY ASSESSES IS A REGISTERED AS A GTA UNDER GST, HE HAS PURCHASED COMMERCIAL VEHICLE WITH HSN CODE 8706 & THEREAFTER VEHICLE IS MODIFIED WITH TANKER UNDER HSN CODE 7310. WE HAVE NOT TAKEN ANY ITC TAKEN ON IT AND DEPRECIATION IS CLAIMED UNDER INCOME TAX ACT,1961. NOW WE ARE SELLING OUR VEHICLE AT THE PRICE BELOW WDV. QUERY IS AS BELOW:

(1) WHETHER ASSESSEE CAN AVAIL BENEFIT OF CGST NOTIFICATION NO.8/2018 DATED 25/01/2018 WHICH DEALS IN GST RATE ON SALE OF OLD/USED VEHICLE. IF YES WHETHER TAX NEED TO BE PAID AS THE ASSESSEE MARGIN IS IN NEGATIVE ( DIFFERENCE BETWEEN WDV AND SALE PRICE).

(2) WHETHER GST IS TO BE CHARGED ON SALE VALUE, IF ASSESSEE DOES NOT FALLS UNDER ABOVE MENTIONED NOTIFICATION NO.8/2018 DATED 25/01/2018 CGST NOTIFICATION.

[KASTURI SETHI]

SH.SAURABH MAGOW,

You have purchased old and used vehicle. So actual question arises is whether modification in this scenario changes the character of 'second hand motor vehicle' or not. In this scenario, modification does not change the character of the second hand goods as no new product is emerged. The status of 'second hand' is intact.

So answer to question no.1 is YES.

[KASTURI SETHI]

For answer to question 2 peruse Board's Flyer/circular.

Margin Scheme in GST

C.B.E. & C. Flyer No. 30, dated 1-1-2018

Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing is such goods may be allowed to pay tax on the 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.

Valuation of Second Hand Goods

As per Rule 32(5) of the CGST Rules, 2017, 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.

The proviso to the above rule further provides that in case of the purchase value of goods repossessed from an unregistered defaulting borrower, 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 this regard, Notification No. 10/2017-Central Tax (Rate) New Delhi, 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.

Illustration : For instance, a company say M/s. First Source Ltd, which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March, 2014 make (Original price ₹ 5 lakh) for ₹ 3 lakhs from an unregistered person and sells the same after minor furbishing in July, 2017 for ₹ 3,50,000/-. The supply of the car to the company for ₹ 3 lakh shall be exempted and the supply of the same by the company to its customer for ₹ 3.5 lakh shall be taxed and GST shall be levied. The value for GST purpose shall be ₹ 50000/-, i.e. the difference between the selling and the purchase price of the company.

In case any other value is added byway of repair, refurbishing, reconditioning, etc., the same shall also be added to the value of goods and be part of the margin.

If margin scheme is opted for a transaction of second hand goods, the person selling the car to the company shall not issue any taxable invoice and the company purchasing the car shall not claim any ITC.

[Guest]

THANKS A LOT RESPECTED KASTURI SIR FOR ELABORATING IN DETAILS AND GIVING VALUABLE SUGGESTION.

AI Summary

GST Margin Scheme Applies to Second-Hand Vehicle Sale Below WDV with HSN 8706 and 7310 Modifications A registered Goods Transport Agency (GTA) inquired about the applicability of GST on the sale of a modified commercial vehicle sold below its written-down value (WDV). The vehicle, initially purchased with HSN Code 8706, was modified with a tanker under HSN Code 7310. The query sought clarity on whether the sale qualifies for benefits under CGST Notification No. 8/2018 and if GST should be charged. An expert clarified that the vehicle retains its status as a second-hand good, allowing the use of the margin scheme under GST, which taxes the difference between purchase and sale price, ignoring negative margins.