AI Drafter 
TaxTMI 
TaxTMI 
2026 (1) TMI 312
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....t, before supplying these vehicles to customers, undertakes minor processing activities such as repairs and refurbishment, including the replacement of spare parts. These activities are intended to enhance the resale value of the vehicles but do not alter their fundamental nature. The said repairs and refurbishments are either carried out at the applicant's own service station or through external service stations. 3.3 For the purpose of valuation and taxation under GST, the applicant proposes to adopt the special valuation mechanism as laid down under Rule 32(5) of the CGST Rules, 2017, which permits payment of GST only on the margin (i.e., the difference between selling price and purchase price), provided that no input tax credit (ITC) is availed on the purchase of the second hand motor vehicles. 3.4 In the course of business, the applicant incurs various common business expenses such as office/showroom rent, telephone expenses, advertising costs, professional fees, and also procures capital goods such as workshop machinery, office equipment, computer systems, and demo cars, which are utilized in the business operations. 4. Applicant's Interpretation of Law and Po....
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....icant submits that sales made with nil or minimal margin under the Rule 32(5) Margin Scheme should not be treated as exempt supplies, but rather as taxable supplies with a nil taxable value. This interpretation is significant for the purpose of apportionment of common ITC under Rule 42, as treating such supplies as exempt would unjustly trigger reversal of common credits. B. ITC on Capital Goods 4.7 The applicant submits that Input Tax Credit (ITC) on capital goods is generally available under Section 16(1) of the CGST Act, 2017, when used in the furtherance of business, except where specifically restricted under Section 17(5). While ITC is admissible on capital goods used in the course of business, it is not allowed on the tax component of capital goods if depreciation on that component has been claimed under the Income Tax Act, 1961. The restriction under Section 17(5)(a) relating to motor vehicles applies only to those used for passenger transport with seating capacity of thirteen persons or less, and does not apply where such vehicles are acquired for further supply, including resale or use as demo cars, which enables the applicant to avail credit on such capital goods. ....
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....dings: 7.1. On review of the application, facts, and hearing submissions, it is found that the questions fall under Section 97(2) (b) and (d) of the CGST Act, relating to notification applicability and tax liability determination. The application is therefore admitted for consideration on merits. 7.2 The applicant is engaged in the business of purchasing and selling second-hand motor vehicles, primarily used luxury cars. The applicant purchases used motor vehicles from both registered and unregistered persons. Before resale, the applicant undertakes minor repairs and refurbishments, including spare part replacements, to enhance the vehicles' market value without altering their essential character. These activities are carried out either at the applicant's own service facility or through third-party service stations. 7.3 In the course of business, the applicant incurs common expenses such as showroom rent, telephone charges, advertising, and professional fees, and also procures capital goods like workshop equipment, office infrastructure, computer systems, and demo vehicles, all used in the regular conduct of business. 7.4 The main issue under consideration is wh....
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....sports utility vehicles (SUV's) including utility vehicles. Explanation.-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 purpose of 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 the 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 CGST Act, 2017, CENVAT as define....
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.... value on the margin basis, subject to the condition that no input tax credit has been availed on the purchase of such goods. 7.7 Upon careful examination of the foregoing paragraphs (7.3 to 7.6), it is evident that where a registered person is engaged in the business of buying and selling second-hand goods, such as used motor vehicles, and does not avail input tax credit on the purchase of such vehicles, the liability to pay tax shall arise only on the margin value, in terms of Rule 32(5) of the CGST Rules, 2017 read with Notification No. 8/2018-Central Tax (Rate) dated 25.01.2018. Both the said Rule and Notification place a restriction solely on the availment of input tax credit in respect of the tax paid on the purchase of the used vehicles themselves. There is, however, no provision under either the Rule or the Notification that prohibits the availment of input tax credit on other inward supplies of goods or services procured in the course or furtherance of business. 7.8 Further, Sub-section (1) of Section 16 of the CGST Act entitles a registered person to take credit of input tax charged on any supply of goods or services or both to him, which are used or intended to be ....
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....annot be classified as an exempt supply, since: • it is not covered under any exemption notification issued under Section 11, • it does not attract a nil rate of tax, and • GST is leviable, though on a computed value of zero. Accordingly, nil-margin transactions under the Margin Scheme are taxable supplies with a taxable value of zero, and not exempt supplies for the purposes of Rule 42 or Rule 43 of the CGST Rules. 7.9.6 Consequently, such supplies shall not trigger reversal of common input tax credit, since ITC reversal is attracted only in respect of exempt supplies, and not in respect of taxable supplies valued at nil due to the statutory valuation mechanism. 7.10 Based on the submissions of the applicant and facts on record read in conjunction with the relevant statutory provisions of law, we find that the applicant is eligible to claim input tax credit of tax paid on both direct and indirect expenses such as repairs and refurbishment of used vehicles, procurement of spare parts, office rent, stationery, telephone, advertisement, and professional services provided such goods or services are used in the course or furtherance of bu....