TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 402
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....ainst the Advance Ruling No. RAJ/AAR/2021-22/04 dated 25.08.2021 BRIEF FACTS OF THE CASE 3. M/s. Tej Kumar Jain, A-3, Ashok Vihar, Girdhar Marg, Malviya Nagar, Jaipur (herein after referred as appellant) has filed appeal against Ruling issued by Authority for Advance Ruling Rajasthan vide order No. RAJ/AAR/2001-22/04 dated 25.08.2021. The Appellant has submitted appeal in this office in hard copy on 30.09.2021. Fee of CGST Rs. 10000/- and SGST Rs. 10000/- have been paid vide Challan dated 25.09.2021. Brief facts of the case are as under:- 3.1 Appellant is planning to start a business in the automobile industry, precisely related with purchase of old and used motor vehicles and then sale of these motor vehicles after refurbishment. The applicant is unregistered under GST at present. The business model planned by the appellant firstly involves purchase of old and used cars mostly from the unregistered persons. However the vehicle can be purchased from the corporate and car dealers also who are registered under GST. That for the purchase of old and used cars, the applicant will deploy an internal inspection team which will inspect the car and prepare the report which will become th....
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....ill show it at the expense side grouped under "Purchases" in the Profit and Loss Account. Appellant 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. 3.3 Appellant submitted that they will be selling old and used refurbished car and will not claim any ITC, hence for the purpose of discharge of GST on its supply, it is covered by the provisions of Notification No. 8/2018-CT (Rate) dated 25-01-2018 wherein for the purpose of levy of tax, the value is determined as margin. As per the said notification, tax in excess of tax payable on the margin is exempt and according to an Explanation to the notification, the value that represents the margin of supplier shall be the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored. 3.4 Appellant has filed an application for Advance Ruling before the Authority for Advance Ruling in context of the aforesaid Explanation (ii) to understand for the purpose of valuation, whether the amount paid to the owner of the car and amount incurred for the refurbishment of the said car a....
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....incurred in relation to procurement of the goods. It appears to be a presumption in vacuum without any reasoning or legal backing. 4.2 Appellant further submitted that it is apparent that the terms purchase price and selling price used in the Explanation have not been defined in the Notification or elsewhere in the statute, hence the same word price being used for sale and purchase in the same context has to be harmoniously interpreted to avoid absurd interpretation of law. Further in absence of a definition, there is an ambiguity in the interpretation of the terms and in such a case, taking the revenue biased meaning as the only meaning of the term is a presumption bad in law framed by misinterpretation of the statutory principle of l iteral construction 4.2.1 That it is apparent that under Explanation (ii) computation of margin has been explained as the difference between the selling price and the purchase price and neither of the terms have been defined in the Notification or anywhere else in the CGST Act or the rules made there-under. 4.2.2 That a practical example is enumerated below to explain the ambiguity in this regard: Purchase Sale Description Amount Description ....
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....ll not be at enable view to hold that selling price will include the refurbishment charges recovered from the customer beyond the amount particularly charged for the sale of old car and on the other hand, the purchase price will not include the refurbishment charges paid to vendors in addition to the amount paid particularly for and at the time of purchase of old car. As clearly evident, it will be absurd to give contrary meanings to the same word price in case of sale and purchase. 4.2.8 That in case the view taken by the AAR regarding price is applied in case of selling price, since the word price has been used, only the amount paid or payable at the time of supply of the goods can be considered as price and any other charges in relation to the supply of such goods do not form part of price, then selling price will only be the amount charged for sale of old car excluding any refurbishment cost recovered from the customer. 4.2.9 That further as per the concept of valuation as per Section 15 of the Act, transaction value is the price actually paid or payable for a supply of goods or services and that should be the value of supply as per Sec. 15 (1) of the Act in case parties are ....
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....as difference between the selling and the purchase price. However on further perusal it is clear that meaning of word selling price and purchase price has not been given in the explanation or anywhere in the notification. Thus it becomes important to bring out the contextual meaning of the word selling price and purchase price used in the notification. 4.3.3 That in case of Maheshwari Fish Seed Farm vs T. Nadu Electricity Board And Anr on 16 April, 2004 it was by the Hon'ble Supreme Court that It is settled rule of interpretation that the words not defined in a statute are to be understood in their natural, ordinary or popular sense. According to Justice Frankfurter, "After all, legislation, when not expressed in technical terms, is addressed to common run of men, and is, therefore, to be understood according to sense of the thing, as the ordinary man has a right to rely on ordinary words addressed." (Wilma E. Addison v. Holly Hill Fruit Products, 322 US 607, at p.618). In determining, therefore, whether a particular import is included within the ordinary meaning of a given word, one may have regard to the answer which everyone conversant with the word and the subject-matter of ....
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.... also passes on to the customer as a part and parcel of the car only. The buyer will not be charged anything separately for such refurbishment. Hence all the cost of refurbishment is part and parcel of the cost of the old and used refurbished car. 4.3.9 That hence in this factual background it is brought on record that use of word "purchase price" in the explanation (ii) to the notification must be read in the context of old used and refurbished cars for which the term "sale price" used in the notification. Any amount which shall be charged by the applicant for supply of old and refurbished car to the customer will be sale price in given case. Hence for the purpose of deriving the margin, the total cost incurred by the applicant to procure the "refurbished old and used car" shall contextually become the "purchase price". 4.3.10 That it is pointed out that since applicant shall not be just selling an old or used car but rather it shall be selling the refurbished old and used car hence all the necessary cost and prices paid by the applicant to receive goods or related services along with the car from the owner of car or otherwise shall become the "purchase price of such old and use....
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....ct, the Central Government has issued Notification No. 8/2018-C.T. (Rate), dated 25-1-2018 effective rates of CGST on old and used Motor vehicles have been notified. Such notification has been enclosed and marked as Annexure-3. 4.4.2 That according to such notification if ITC is not claimed on the inward supplies of goods by a registered person and it is supplying (selling) old and used motor vehicles as classified under Chapter 87 of the First Schedule to the Customs Tariff Act, 1975, then CGST is payable at the rate of 6% or 9%, as the case maybe on the value represents margin of the supplier (i.e. registered person). 4.4.3 That the wordings used in the 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 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 ....
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.... saleable at all in the market. 4.4.7 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. 4.4.8 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 refurbishes the True-Value vehicles as per the MSIL guidelines. It collects the refurbishment charges separately from the buyer, besides the cost of the used cars. In short, the selling price of the used car includes the cost of the used car, the refurbishment charges, the manage....
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....- Sales tax levied on 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 collection but was collected under executive instructions and cannot be excluded while d calculating the 'sale price' " - Whether amounting to double taxation - Permissibility of - Held, resale price in the instant case exceeded 40% of the purchase price, therefore, the resale price was deemed to be the first point sale - S. 8(1) did not envisage double taxation in the same State - Appellant Company having paid sales tax on purchase of petroleum products from BRPL the sales tax would be leviable only on the difference of the resale price and purchase price - Appellant only under obligation to pay sales tax only on the difference between purchase price and the entire sale price - Directing the appellant Company to pay sales tax on th....
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....n in accordance with the accounting principles, the same motor vehicle is treated as a fixed asset, both in the books of account 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. 4.6.4 That an important point for given consideration is that when a motor vehicle is treated as fixed asset then the intention of its owner is to use such motor vehicle in the course of business for a reasonable duration of time which mostly extends upto the life of such motor vehicle. The motor vehicle is procured with an intention to possess and use it for a period of more than 1 year at least. The intention to procure such motor vehicle is never to earn profit by selling it in the market. Only when such asset is not of use or better alternative of same is available for the user at its replacement cost, then the said motor vehicle which is an asset, is sold or disposed off in the open market, either to another user or to those who are in the business of buying and subsequently selling such used and old motor vehicle. 4.6.5 That in aforesaid case, any cost incurred on the repair or refurbishment of such ....
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....tion 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. 4.7 That the sale of old and used refurbished motor car is governed by the provisions of a statute by which applicant is bound to incur the cost of refurbishment and provide the car in a refurbished and working condition. 4.7.1 That in addition to the above, the sale of old and used refurbished motor car is governed by the provisions of the Sales of Goods Act 1930. As per Section 16 of the said, following is relevant for understanding 16. Implied conditions as to quality or fitness.-Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:- (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it....
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....red to incur some expenses. Purchase and related costs incurred in bringing it to refurbished condition shall be treated as a profit and loss item from the perspective of accounting and inventory of such acquired old/used refurbished car shall not be treated as fixed asset in the books of account, rather it shall be treated as an inventory / stock items and no depreciation under the provisions of Income Tax Act 1961 shall be charged in the books of account or in the Income Tax Return by the appellant. The appellant 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. Appellant 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. 6.3 Authority for Advance Rulings, Rajasthan held that from the plain reading of Explanation (ii) to the Notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018 that it is observed that the Explanation (ii) undoubtedly/clearly used the word "purchase price" no....
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....on. - For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above. 9% 4. 87 All Old and used Vehicles other than those mentioned from S. No. 1 to S. No. 3 6% Explanation - For the purposes of this notification, - (i) in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act, 1961 (43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored; and (ii) in any other case, the value that represents the margin of supplier shall be, the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored. 2. This notification shall not apply, if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act, 2017, CENVAT as defined in CENVAT Credit Rules, 2004 or the input tax credit of Value Added Tax or....