TaxTMI 
TaxTMI 
2022 (2) TMI 993
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....alviya Nagar, Jaipur Rajasthan (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: - (a) Classification of any goods or services or both: Further, the applicant being an un-registered person as per the declaration given by him in Form (ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling. A. SUBMISSION AN INTERPRETATION OF THE APPLICANT: 1. That the business model planned by the applicant involves firstly purchase of old and used cars mostly from the unregistered persons. However, the vehicle can be purchased from the corporates also who are registered under GST. 2. That for the purchase of old and used cars, the applicant will deploy an internal inspection team which will inspects the car and prepare the report which will become the basis of the acquisition cost as one of the component of the purchase price. 3. That registration Certificate (RC) will be a compulsory document required while purchasing the car. Since these vehicles are meant f....
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.... old/used refurbished car shall not be treated as fixed asset in the books of accounts. But rather it shall be treated as an inventory / stock item and no depreciation under the provisions of Income Tax Act 1961 shall be charged in the books of accounts or in the Income Tax Return by the applicant. 10. That on the contrary, the applicant shall treat such cost of purchase and cost of refurbishment as "acquisition cost" of the inventory of the old and used refurbished car and will show it at the expense side grouped under "Purchases" in the Profit and loss Account. 11. That applicant does not intend to claim or avail Input Tax Credit of tax charged (if any) on inward supply of motor car (i.e. acquisition) or on refurbishment cost incurred by it. 12. That since the applicant shall be selling old and used refurbished car, hence for the purpose of discharge of Goods and Services Tax on its supply and will not claim any ITC. it is covered by the provisions of Notification No. 8/2018-CT (Rate) dated 25-012018 wherein for the purpose of levy of tax, the value is determined as margin. The copy of said notification is enclosed and marked as Annexure-3. 13. That in the Explanation to the ....
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....bility of a notification issued under the provisions of this Act; (c) determination of time and value of supply of goods or services or both: (d) admissibility of input tax credit of tax paid or deemed to have been paid: (e) determination of the liability to pay tax on any goods or services or both: (f) whether applicant is required to be registered; (g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. 4. The applicant submits that the questions for determination in the instant advance ruling application concerns (a) determination of time and value of supply of goods or services or both, which is covered under the said section. 5. Therefore, in the instant case the applicant is eligible to file the present advance ruling before the Authority for Advance Ruling. II. APPLICANT'S INTERPRETATION Legal Provisions as applicable 1. According to Section 7 of Central Goods and Services Tax Act. 2017 7. (1) For the purposes of this Act, the expression "supply" includes,- (a) all forms of supply of goods or services or both suc....
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....h does not change the nature of goods would be allowed and the goods sold shall remain used and old goods. Such goods are commonly known as "Second Hand Goods" also in the popular sense. 8. That in fact for valuation of sale of second hand goods under GST, there is specified Rule 32(5) of the CGST Rules 2017 which brings out that minor processing which does not change the nature of goods is carried out on used goods, then they shall remain Second hand goods. The said fact has been tested and affirmed in various AAR orders such as,- a. Attica Gold Pvt Ltd 2020 (36) G.S.T.L. 445 (A.A.R. - GST - Kar.) b. Shambhu Traders Pvt Ltd 2019 (23) G.S.T.L. 293 (A.A.R. - GST) 9. That also without prejudice to the above, the wordings used in the Table in Column (3) of Notification No. 08/2018-CT(Rate) dated 25-01-2018 are reiterated for the sake of reference S.No. Chapter, Heading, Sub-heading or Tariff item Description of Goods Rate (1) (2) (3) (4) 1. 8703 Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 min or more. Explanation. - For the purposes of this entry,....
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.... in both the scenarios i.e. when depreciation under the IT Act 1961 has been claimed on the motor cars to be sold or when depreciation under the IT Act 1961 is not claimed on the motor cars to be sold, hence same needs to be referred in given case. 13. That it is pointed out that whether depreciation is to be claimed under the provision of Section 32 of the IT Act 1961 upon a motor vehicle is dependent upon the fact that whether such motor vehicle has been treated as a fixed asset or not by the person claiming the benefit of given notification. 14. That whether a motor vehicle is a fixed asset or not, depends upon the facts and circumstances of each case. Only in the cases where the motor vehicle has been acquired with an intention to use in the business but not to resale then in accordance with the accounting principles, the same motor vehicle is treated as a fixed asset, both in the books of accounts and also under the provisions of Section 32 of the IT Act 1961. In such a situation, depreciation at specified rate is claimed on such motor vehicle. 15. That an important point for given consideration is that when a motor vehicle is treated as fixed asset then the intention of it....
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....n which it is liable to pay the tax. The more and better the cost of refurbishment, the higher the margin and in turn higher the tax to the exchequer. It has already been stated in the facts of the advance ruling that applicant is required to undertake the various types of cost at the time of refurbishment and same will be done by the professional who analyses the requirement and components of the refurbishment. 21. That in fact the registered persons covered by the provisions of explanation (i) to the notification i.e. who claim depreciation under the IT Act 1961 on cost of motor vehicle generally supplies such used and old motor vehicle to the persons like the applicant in given case who only procure the used and old vehicle. That is why the margin for the purpose of given notification in case of applicant is governed by the provisions of explanation (ii) to the notification which is different from the situation covered under Explanation (i) where generally cars used as asset are sold. 22. That on perusal (ii) to the notification, it is clear that margin is identified as difference between the selling and the purchase price. However, on further perusal it is clear that meaning ....
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....ertake the same or will not have competence to do so, then it cannot survive in the business at all. Further the cost of such refurbishment is not standard and will depend upon the condition of the car and the judgment of the applicant. 27. That further, when the car will be sold in the market to the customer, the said customer shall be made aware in advance the various types of the refurbishment activities which have been undertaken on such car. The customer will be made aware about necessary corrections and activities which have been undertaken to ensure the car is usable and the customer shall be able to reap its benefit while using the same. Hence in the open market it is very evident between the prospective customer and the applicant or other players that car which is being sold is not just and old or used car but certain refurbishment activities in form of goods and work has been undertaken. 28. That in fact during the course of refurbishment, the property of goods used in the undertaking such refurbishment for instance, replaced tyre, wiper, seat cover, paint etc also passes on to the customer as a part and parcel of the car only. The buyer will not be charged anything sep....
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.... the word 'purchase' is acquisition for money or for any consideration. That is the primary meaning. In Concise Oxford Dictionary, apart from the two meanings "buy, acquire", another meaning given to the word "purchase" is "procure". The word "procure" consists of much wider import than the word "purchase". In the same dictionary, the word "procure" has been given the meaning as "obtained by care or effort acquire". 33. That on reading of above, it is evident that purchase includes making an effort to bring goods to a location and condition where they are for use or for onward sale. 34. That in fact the given concept of sale price and purchase price also corroborates with the accounting principles and methodology to be followed by the applicant in its books of accounts which shall be in governed by the principles of the Accounting Standards as applicable in India. 35. That it has already been pointed out above that the old and used refurbished car shall not be a fixed asset for the applicant but rather it shall be an inventory item i.e. purchase of goods for the purpose of resale, hence its accounting shall be governed by the Ind AS 2 i.e. Indian Accounting Standard 2 wh....
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....ation, difference is required to be taken between the sale price (which includes the recovery towards the car. refurbishment cost and margin), the comparable purchase price shall include the cost of car and the refurbishment cost. Then only in true and real sense the tax shall be payable on the margin. 42. That if only purchase cost of car is considered as purchase price for the purpose of calculating margin and whereas for calculating sale price the value of total amount including the refurbishment recovery is also considered then the margin derived from such method shall be faulty and will lead to double taxation. 43. That in fact recently in the case of The Commissioner of Central Excise, Customs and Service Tax, vs M/s Sai Service Station Ltd reported in 2017 (7) GSTL 17 it was held by the Kerala High Court that, in similar facts matrix, the Hon'ble High Court noted that 26. In its books of account, the dealer reflects the 'refurbishment charges' the expenses, that is, the cost of spares, labour, denting and painting work, etc.. incurred by the dealer for renovating the used car. Though it refurbishes both the True-Value and the Non-True-Value cars, the dealer r....
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....given notification the cost of refurbishment is required to be included in the purchase price as mentioned in the notification. 48. That similar view has been held in case of Indian Oil Corporation vs State of Assam and Ors reported in 2007 11 SCC 693 where it was held that:- A. Sales Tax "Double taxation" "Determination of" Resolution of Government dated 16-12-1977 requiring a dealer to sell products at prices fixed by Government which included "surcharge" to be collected from dealers and deposited in "oil pool account" "Appellant Company purchasing petroleum products from a refinery and paying sales tax on such products Vide government resolution Company had to sell its products at fixed prices inclusive of surcharge component Sales tax levied on c appellant at the first point of sale as the sale price charged exceeded 40% of the purchase price Appellant Company's sales tax liability determined on the second sale or resale of tax-paid goods deeming it the first point of sale Appellant contending "sale price" for the purpose of the Act should be determined after reducing the amount of "surcharge" paid into "oil pool account" High Court held "surcharge was not statutory coll....
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....d condition as regards defects which such examination ought to have revealed. (3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. (4) An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith. 50. That in case of applicant, the quality of old and used refurbished car is governed by Section 16(3) of the aforesaid Act wherein the applicant shall be bound to make available and old and used by working car to the customer. In case the old and used car is not working properly then as per usage of trade, the customer may raise quality claim of non-working parts or features of the car (old and used) as promised. To ensure such compliance the applicant is required to undertake the refurbishment cost along with the car procured by it. Hence without same the sale may be treated as invalid in accordance with the provisions of the Sales of Goods Act 1930. 51. That on the basis of above the applicant is of the understanding that cost of refurbishment is includible in the purchase price for calculation of margin as specified under explanation (ii) to No....
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....tra-state supplies of goods, the description of which is specified in column (3) of the Table below, falling under the tariff item, sub-heading, heading or Chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are given in corresponding entry in column (2), from so much tax as specified in Schedule IV of Notification No. 1/2017-Central Tax (Rate), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4), of the said Table, on the value that represent margin of the supplier, on supply of such goods. S.No. Chapter, Heading, Subheading or Tariff item Description of Goods Rate (1) (2) (3) (4) 1. 8703 Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more. Explanation. - For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there- under. 9% 2. 8703 Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm Explanation.....