GST on used car by compay

[HASMUKH PATEL]

Dear Sir,

We are manufacturer and launch scheme for employee. We provide car to employee for company and personal use under agreement/ scheme of 4 years. Under scheme the employee pay 52% and we employer pay 48% of EMI. We don't claim of ITC but ,book the cars in our account and claim the depreciation under income tax act. After complication of 4 year we transfer the car to employee.

Now the question is that any GST is applicable on it after 4 year at the transfer of car to employee ?.

[Vijay kumar]

As per Section 7 of the CGST Act'17 supply takes place only when there is a consideration in the course of furtherance of business.. In your case, both these conditions seem to have not been fulfilled. Since there is no supply, there would be no GST liability, in my view. Both your contribution and employees' contribution are made to the car manufacturer/dealer and no income accrues to you in the whole transaction. Secondly, it's an activity not in the course of furtherance of business and hence Sch.I is also not attracted. Since ITC is not availed, Sn.17(5) does not come into picture.

[HASMUKH PATEL]

Dear Sir,

Margin act is applicable in this case under Notification No. 08-2018-CGST Rate ? We have claimed depreciation on whole amount of car under Income Tax Act. Pls. clarify the point. Also as per Schedule-II , related person sale ( employee-employer) is supply without any consideration.

[AdvMurari Kumar]

you might have capitalized GST amount also and claimed dep. on that,

in my view if there in any profit at the time of sale GST would be applicable i.e. sale value-book value if sale value is high.

[HASMUKH PATEL]

Sir,

As er my understanding margin act is only applicable, who is buying and selling of old cars.

This act is applicable to all register person ?

[AdvMurari Kumar]

it is for all but not for them who has taken GST input on it,

as we know input is available if person in same line of business. then other calculation is applicable.

[HASMUKH PATEL]

But ITC is blocked under Sec. 17 for motor vehicle with capacity less then 13 passengers.

[AdvMurari Kumar]

Read Section 17 with following

Provided that the input tax credit in respect of such services shall be available-

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged-

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

[HASMUKH PATEL]

Sir,

As per your explanation , we can not take ITC on car purchase under agreement between employee & employer. If we do not claim ITC -blocked ITC by GST , it mean it's not for furtherance of business our business. Now after completion of agreement , we transfer the car to our employee , why GST is applicable ? Can it consider as supply ?

The calculation for consider the supply value under Notification No. 08/2018 is applicable?

How to consider transfer value under Notification No. 08/2018. Tax on actual transfer value - depreciative value. If it's negative not GST . But i our case it's become positive.

[Vijay kumar]

For any event to be taxable under GST, it has to be supply u/s 7 r/w Schedules..you feel that it will fall under Sch.I.. pls check where it fits into Sch.I, which reads as follows. Sl.no.2 is attracted (your company and employees being related persons) only when the supply is in furtherance of business. Is your company doing any business in the whole transaction? Valuation aspect will come only when there is a supply. ITC in any case is barred.

 

[HASMUKH PATEL]

Thanks for clarifications.

Dear Vijaykumarji,

The ITC on motor vehicle having capacity less then 13 passenger including driver is bended. In some cases it's available like used in cab - taxi etc.

In our cases we could not claim ITC on car procure under employee-employer agreements.

Now my confusions as under.

If we pay tax on margin amount , doesn't is dabble taxation on good ?

It's consider as company asset , but if ITC is not claim on it as it is restricted by section 17 can company liable to pay GST on it ?

Can tax on used car is only applicable to dealer who register for purchase and sale of used vehicles??

[HASMUKH PATEL]

Dear All experts,

I have found one press release issued by CBEC as on 10.07.2021 regarding same issue.

See below press release issued by cbec.

PRESS RELEASE

It is being reported that gifts and perquisites supplied by companies to their employees will be taxed in GST. Gifts upto a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than Rs 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business.

The question arises as to what constitutes a gift. Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.

Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

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AI Summary

GST on employer to employee transfer: transfer may attract GST if treated as supply in furtherance of business under GST law. Whether transfer of employer held motor vehicles to employees after a multi year scheme constitutes a taxable supply depends on existence of consideration and whether the transfer is in the course or furtherance of business; if treated as supply, valuation and taxability may be affected by margin scheme rules, denial of input tax credit for motor vehicles, capitalization and depreciation treatment, and guidance distinguishing gifts and contractual perquisites.