Margin scheme for buyer and seller of old second hand goods under GST

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Margin scheme for buyer and seller of old second hand goods: Law is made to solve various problems. GST too was rolled out to resolve various business & economic issues. GST is not only a tax reform; largely it is a business reform. GST law will bring positive reforms in business.

Margin scheme for buyer and seller of old second hand goods under GST

Buyers & sellers of old second hand goods were wondering with questions like, “at what value GST rate will be charged?” Some business houses were charging GST rate at transaction value and felt huge burden of taxes on their sales, due to unawareness about rule 32(5) of the CGST Rules 2017. Through this article, endeavours are made to create awareness and to provide basis knowledge of margin scheme.

What is margin scheme?

Usually, under regular scheme GST is charged on transaction value. But Business segments selling second hand goods may be allowed to pay tax on margin i.e. difference between the value at which goods are supplied and the price at which goods are purchased.

Illustration

M/ s ABC Pvt. Ltd. is in business of buying and selling of second hand cars. It purchases an old Toyota Etios at INR 2.5 lakhs from an unregistered person and after making minor repairs, sells it for INR 3.5 lakhs. In this situation, supply of car to M/s ABC Pvt. Ltd. for INR 2.5 lakhs shall be exempted and supply by M/s ABC Pvt. Ltd. to final customer at INR 3.5 lakhs will be taxed and tax will be levied at INR 1 lakhs, i.e. the difference between the selling price and purchase price. Repair charges shall also be part of margin. Benefits of Margin scheme

This scheme will mitigate the problem of double taxation, as goods bought for selling had already born incidence of tax.

Relevant Rules and Notification related to Margin Scheme

  • Rule 32(5) of CGST rules 2017
  • Notification number 10/2017 central tax (rate)
  • Notification number 8/2018 of central tax (rate)
  • Notification number 9/2018 of IGST
  • Notification number 1 /2018 cess(rate)

How to determine value of Supply under Margin Scheme?

As per Rule 32(5) of 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.

Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, 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.

Is there any exemption on buying old second hand goods from unregistered person?

As per Notification No.l0/2017-Central Tax (Rate) dated 28-06-2017 There is exemption on 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 Central Goods and Services tax Rules, 2017, from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Good and Services Tax Act, 2017

Relaxation in GST rates and cess on old cars after 25th GST Council Meeting

Used car industry was suffering burden of 28% GST rate, their pain was considered in 25th GST Council meeting and decision was taken to reduce GST rate and cess on used car. As per Notification No. 8/2018 -Central Tax (Rate) dated 25-01-2018 new rates are:

S.No Description of Goods GST
1 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. 9%
2 Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm 9%
3 Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.
4 All Old and used Vehicles other than those mentioned from S. No. 1 to S.No.3 6%

As per Notification No. 1/2018-Compensation Cess (Rate) dated 25-01-2018 Cess is reduced to nil

Description of Goods All old and used motor vehicles Cess
Explanation: Nothing contained in this entry shall 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 credit as defined in CENVAT Credit Rules, 2004, or the input tax credit of Value Added Tax or any other taxes paid on such vehicles NIL

Points to remember

  • Scenarios for calculation of Margin
    • I. If registered person has claimed depreciation under section 32 of the Income-Tax Act,1961 on the used second hand 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.
  • Maintain authentic documents like payment voucher against buying of second hand goods from unregistered seller
  • Make payment for buying old goods through banking channel which is authentic proof for your purchase price.
  • If margin scheme is availed, then ITC can’t be claimed
  • Unregistered person cannot issue tax invoice

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