sale of car, Goods and Services Tax - GST

[DK AGGARWAL]

Sir

we want to sell the old car purchased before July 2107, registered in the name of Firm to another firm duly registered under GST.

Please inform if GST is applicable on sale of old car and if so whether GST input is available to the new buyer.

Please inform the rate of GST if applicable

Regards

D K Aggarwal

Posts / Replies

[balasundaram t]

I agree with CA Sanjai Sir

[Ramaswamy S]

I would like to refer to rule 32(5) of the CGST Rules which is akin to the case here.

32(5) - 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 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.

It is highly prone to litigation yet nevertheless worth exploring.

regards

S.Ramaswamy

[CS SANJAY MALHOTRA]

Sh, Ramaswamy ji,

Present issue does not focus on second hand car sale, hence no concern for litigation for same. The Notification is absolute clear in such regard.

[RAJESH MANGAL AGRAWAL]

Thanks to all for a wonderful discussion.

Sirs all the discussion is going on because of Restriction on availment of Input Tax Credit on Motor vehicles as per Sec 17(5).

In my view we must check Schedule 1 & Schedule 2 of CGST ACT which are also Contradictory to each other.

The Schedule-1 deals with ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION.

The Entry 1 of Schedule 1 reads as under.

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

Here we have to consider the following points.

1) SCHEDULE 1 COVERS ALL SUCH ACTIVITIES WHICH DO NOT HAVE ANY CONSIDERATION.

2) THE ENTRY 1 COVERS ONLY THOSE TRANSACTIONS WHERE INPUT TAX CREDIT HAS BEEN AVAILED ON SUCH ASSETS.

Here the question is levy of GST is on sale of old car purchased before 01.07.2017 by the buyer.

1) From the above discussion it is clear that, as the car was purchased before 01.07.2017, there is no question of levy of GST while purchasing of impugned car by the original buyer, accordingly there is no question of availment of Input tax credit & IDEALLY GST SHALL NOT BE LEVIED ON SALE OF OLD CAR.

2) Suppose the car was purchased after 01.07.2017, then also availment of Input tax credit is restricted by sec 17(5) & IDEALLY GST SHALL NOT BE LEVIED ON SALE OF OLD CAR.

The Schedule-II deals with ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

The Entry 4 of Schedule 2 reads as under.

4. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

According to Schedule II , the sale of Old car will be treated as Supply of Goods.

The interesting part is here the pre-requirement of availment of Input tax credit is not attached here as given in Schedule-I.

Further SCOPE OF SUPPLY as defined in Sec7 is a inclusive definition and is a very wider term & is given as under.

Scope of supply.

7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

AS entry 4 of schedule II covers sale of old car & Schedule II is covered by clause (d) of sec 7(1) , THE SALE OF OLD CAR WILL BE LIABLE TO GST.

AS RIGHTLY SAID THE TAX & CESS RATE WILL BE SAME AS THAT OF NEW MOTOR VEHICLES ON 65% VALUE.

ALTHOUGH LOGICALLY IT IS NOT CORRECT TO CHARGE GST ON SALE OF OLD CAR BECAUSE OF DOUBLE TAXATION, STILL AS PER THE PREVALENT LAW AS ON TODAY GST IS LEVIABLE TILL THE SAME IS STRUCK DOWN BY THE COURTS.

[Venkatesh S]

Dear Sanjay,

Reduction of 35% in cess rate is applicable only for leased vehicles. My understanding is it is not applicable on sale of used cars.

[CS SANJAY MALHOTRA]

Mr. Venkatesh,

Request you to go through Point No 2 of Notification No 37/2017-CGST besides GST Council Press Release. Afterwards views most welcome.

[Keyur Mehta]

Dear Mr. Sanjay and Mr. Rajesh,

Your contribution on this post has been highly enlightening and detailed. A very healthy discussion. However, most confusing to conclude.

View presented by Mr. Rajesh leads to the conclusion that one should pay the tax going by the language in the Schedules. Whereas views presented by Mr. Sanjay leads to the conclusion that one should not pay the tax and awaken the Govt against such double taxing provisions.

Thanks once again for bringing lot of insight into the issue.

[NITIN LADDHA]

Dear Sanjay ji and Rajesh ji

Thanks for this post, very informative and useful.

I have one query regarding conditions of Notification No 37/2017-CGST, can we read both the conditions as ÁND' i.e 1) Motor Vehicle was purchased by Lessor..... AND 2) The Supplier of MV is registered person...? If this understanding is correct than it appears that the Notification No 37/2017 is only for Sale of Leased vehicles which were supplied on lease before 1 July 2017. Also the condition of applicability of this notification only till 1 July 2020 points in this direction.

I have a similar query as of D K Aggarwal Ji, for one of the client we have claimed deprecation on a MV as it is used in business and now need to dispose off the MV but not clear as to GST impact on such transaction ?

Both the arguments : 1) permanent disposal of business Assets- treated as supply and 2) Double taxation of transaction are compelling. Kindly guide.

[Vijay Singh]

After noti.no.08/2018 CGST (r) dtd.25.01.2018.

Pl explain the situation..

[Vijay Singh]

Pl explain the below situation..
If the depreciated value is 6L and selling price is 5.5 than if a firm want to sell a used car within the state .. what tax he have to pay.

Please refer the point 1 for 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

[Ravindra Gawande]

Hello,

You have two ways for invoicing.

1. consideration value / agreed sale value / deal value.

WDV of said car ₹ 10000/- (-) deal value ₹ 9000/- = Loss ₹ 1000/- "No GST will be attract."

WDV of said car ₹ 10000/- (-) deal value ₹ 15000/- = Profit ₹ 5000/- "GST will be attract on Profit @ 18%."

2. Abetment

You can take 35% abetment on consideration value / agreed sale value / deal value & charge GST @ 18%.

consideration value / agreed sale value / deal value ₹ 100000/- (-) Abetment @ 35% Rs. 35000/- = Taxable ₹ 65000/-

Thanks.

[MANAV KEDIA]

Sir, Please clear the query raised by Nitin Laddha ji on 23rd January 18.

[Lakshminarayanan TR]

Dear Sir

Please refer the Notification No. 8/2018 -Central Tax (Rate) dated 25th Jan 2018. Disposal of old and used goods is taxable on the margin. Rate various depends upon the category listed on the notification. Any registered person under schedule II becomes liable to pay GST on disposal of asset permanently.

[KASTURI SETHI]

Sh.Lakhshminarayan Ji, Thanks for updation and correlation .

[CA.Tarun Agarwalla]

dear Sir

I would like to bring the attention to the definition of business as per ACT. which covers single transaction to its ambit.