After the implementation of GST sale of used and old vehicles were taxed at the same rate as applicable on new vehicles which was 28% + Applicable cess which was up to 15%, and due to this effective tax on sale of old vehicles was upto 43%. This higher rate of tax was causing the burden on trade and industry and due to this there was slow down in the used vehicle market.
Big Relief on Sale of Old and Used Vehicles:
Government by issuing the Notification No. 8/2018 Central Tax Rate read with state Tax Notification, reduced the Rate of GST on old and used vehicle as follows:
1. GST-18% on 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.
2. GST-18% on Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm
3. GST-18% on Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility
4. GST-12% on All Old and used Vehicles other than those mentioned from S. No. 1 to No.3
Note: Government also Exempted the Cess applicable on sale of Used vehicle through Notification No. 1/2018 Compensation Cess Rate.
Concessional rates are not available if input tax credit under GST or Cenvat Credit under Cenvat Credit Rules or ITC under State Vat was availed.
If motor vehicles purchased prior to 1-7-2017 and Cenvat credit was not availed, the tax rate is 65% of normal rate. Similarly, if such vehicle was given on financial lease, tax rate will be 65% of normal rate – Notification No. 37/2017-CT (Rate) dated 13-10-2017. & GST Compensation Cess will also be 65% ( Notification No. 7/2017- Compensation Cess (Rate) dated 13-10-2017.)
Valuation of Old or Used car for GST Calculation
Value on which GST at above rates to be calculated shall be Margin of Supply which is to be calculated in the manner as mentioned in Notification which is given below:
1. In Case Depreciation under Income Tax Act Availed: Margin of supply shall be difference between Sale consideration and Written down Value and tax to be calculated on such Margin, and where the margin of such supply is negative, it shall be
As per Income Tax Act , income tax requires computation of depreciation on the asset block , but for the purpose of GST rate is required to be applied for the specific motor vehicle.
In other cases: Margin of Supply shall be difference between sale price and purchase price Tax to be calculated on such Margin, and where the margin of such supply is negative, it shall be ignored. Negative value in valuations, need not be considered as exempt non-GST supply, and therefore, therefore there is no need of reversal of ITC under Rule 42 or Rule 43 of CGST Rules 2017.
Rule 32(5) of CGST Rules 2017 provides special valuation in case of persons dealing in buying and selling of used vehicles. Such dealers can supply the goods as such or after minor processing which does not change the nature of such goods. If no input tax credit has been availed on the purchase of such goods, then GST may be paid only on the differential amount between the selling price and the purchase price.
Sale of used vehicles supplied by Government– In case of used vehicles, supplied by Central Government, State Government, Union territory or a local authority, the registered person receiving the supply is liable to pay tax under reverse charge – Notification No. 4/2017-CT (Rate) dated 28-6-2017 amended w.e.f. 13-10-2017.
In case of sale of used vehicles supplied by Government to unregistered person, respective department of Central Government, State Government, Union territory or a local authority should obtain GST registration and pay GST-para 1 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018.
It is held by AAR Maharashtra in re ( 2018) CMS Info Systems Ltd. GST is payable on supply of old motor vehicles as scrap
Margin Scheme in GST
Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing is such goods may be allowed to pay tax on the margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne
the incidence of tax, re-enter the supply and the economic supply chain.
Valuation of Second Hand Goods:
As per Rule 32(5) of the 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. The proviso to the above rule further provides that in case of the purchase value of goods repossessed from an unregistered defaulting borrower, 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.In this regard, Notification No.10/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 exempts 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 CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.
For instance, a company say M/s First Source Ltd, which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March, 2014 make (Original price Rs. 5 lakh) for Rs. 3 lakhs from an unregistered person and sells the same after minor furbishing in July, 2017 for Rs. 3,50,000/-. The supply of the car to the company for Rs. 3 lakh shall be exempted and the supply of the same by the company to its customer for Rs. 3.5 lakh shall be taxed and GST shall be levied. The value for GST purpose shall be Rs. 50000/-, i.e. the difference between the selling and the purchase price of the company. In case any other value is added by way of repair, refurbishing, reconditioning etc., the same shall also be added to the value of goods and be part of the margin.
Margin Scheme in GST if margin scheme is opted for a transaction of second hand goods, the person selling the car to the company shall not issue any taxable invoice and the company purchasing the car shall not claim any ITC.