MARGIN SCHEME UNDER GST

[Mr. M. GOVINDARAJAN]

Margin scheme is a concept introduced in GST.  As per the provisions of GST laws CGST+SGST/UTGST or IGST is levied for the supply of services of goods or services or both unless the said supply is exempted.  In the trade second hand sales is also possible and in export import procedure also.  A person dealing with the second hand goods is allowed to pay the tax on 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.

Rule 32 (5) of the CGST Rules provides that 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 said Rule provides 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.

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.

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.

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.

In re ‘Shambhu Traders Private Limited’- 2019 (3) TMI 841 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN the applicant sought an advance ruling before the Authority for Advance Ruling as to whether selling the used led acid batteries to other manufacturers will quality as ‘second hand goods’ and  if the said goods are sold outside the State whether it would qualify as ‘second hand goods’.

The applicant registered under GST provisions.  The applicant is selling used lead acid batteries to various manufacturers.   The applicant is operating under the Margin Scheme notified under Rule 32(5) of CGST Rules, 2017.  The applicant used to purchase the used lead acid batteries from unregistered suppliers in small quantity.  The applicant purchases these batters from the suppliers within the State and also from outside the State.  The applicant subsequently sells the same to various manufacturers by charging GST on the difference between the sale price and purchase price of lead acid batteries.  The applicant submitted the following before the Authority for Advance Rulings-

• The used lead acid batteries are used goods and no processing is done on such goods.  Therefore, these used lead batteries qualify as second hand goods in as much as these goods are ‘used goods as such’.  Further the applicant does not avail input tax credit on such used lead acid batteries.
• GST council, vide their press release on 15.07.2017, clarified that the margin scheme can be availed of by any registered person dealing in buying and selling of second hand goods, including old and used empty bottles and who satisfies the conditions as laid down in Rule 32(5).
• The aforesaid clarification shall squarely be applicable in respect of used lead batteries as just like used bottles no processing is done on the used lead acid batters.  Therefore these used lead acid batteries qualify to be second hand goods.
• The applicant is therefore, entitled to operate under the Margin scheme in respect of the used lead batteries.
• In terms of Rule 2 of Integrated Goods and Services Tax Rules, 2017, the CGST Rules, 2017 for carrying out the provisions specified in section 20 of the IGST Act, 2017 shall, so far as may be, apply in relation to integrated tax as they apply in case of central tax.  section 20 of IGST Act prescribes that the provisions of the CGST Act shall mutatis mutandis apply to various subjects which have been provided under section 20.  The subject pertaining to ‘time and value of supply’ is also covered under section 20, hence the rules made there under CGST Act, in relation to value of a supply is applicable to IGST Act as well.
• Therefore Rule 32(5) of CGST Rules, 2017, which provides for margin scheme in case o intra-State supplies, shall also be applicable in case of inter-State supplies.
• The applicant is, therefore, entitled to make inter-State supplies of used batteries while operating under the Margin Scheme.

The jurisdictional officer submitted that the activities undertaken by the applicant is a composite supply of goods and GST is applicable to it.

The Authority for Advance Ruling observed that used lead batteries are used goods and no processing is done on such goods.  Therefore these used lead  acid batteries qualify as second hand goods.  The applicant does not avail input tax credit on such used lead acid batteries.  Therefore the Authority ruled that the used lead acid batteries qualify to be second hand goods and the applicant is entitled to operate under the Margin Scheme in respect of the said used lead batteries.

The Authority for Advance Ruling analyzed the provisions of Rule 2 of IGST Rules, 2017 and section 20 of IGST Act.  The subject pertaining to ‘time and value of supply’ is covered under section 20, hence the rules made under the CGST Act in relation to valuation of a supply is applicable to IGST Act as well.   The Authority ruled that the Rule 32(5) of CGST Rules, 2017 which provides for Margin Scheme in case of intra-State supplies shall also be applicable in case of inter-State Supplies.  The applicant is entitled to make inter-State supplies of used lead batteries while operating under the Margin Scheme.