The second-hand goods industry has been substantially growing since past few decades in India and across the globe. There is a huge organized as well as unorganized market for second-hand goods in India for re-sale of vehicles, electronic products, mobile phones, televisions, laptops, watches, jewellery, clothes, hand bags, sneakers, and the list is endless. Hence, it becomes important to study how Indirect taxes i.e. GST affects the businesses engaged in trading of such second-hand goods. Below are some FAQs related to GST on second-hand goods, which would ensure proper legal interpretation and compliance by such organizations.
Background
Q. What is Margin Scheme under GST Law?
As per the Margin Scheme under GST Law, a second-hand goods dealer can sell used goods paying GST only on the margin value of such goods instead of the transaction value or the sale value [Rule 32 (5) of the CGST Rules ]
Q. What is the purpose of having a Margin Scheme in GST?
The purpose of the scheme is to avoid double taxation as these are second-hand / used goods, having earlier borne the final tax incidence, and re-entering the economic supply chain.
Q. Is the term "Margin Scheme" defined under the GST Law?
No. There is no specific definition of "Margin Scheme". However, the valuation of second-hand goods is specifically dealt with under Rule 32 (5) of the GST Rules which is commonly referred to as the Margin Scheme.
Q. Are "second-hand goods" defined under the GST Law?
No. Second-hand goods have not been defined under the GST Law.
- As per Collins dictionary, Second-hand things are not new and have been owned by some one else.
- As per Oxford dictionary, Second-hand goods are those having had a previous owner and are not new.
Q. Who can take the benefit of Margin Scheme?
As per Rule 32(5), any person dealing in buying and selling of second-hand goods can avail the benefit of Margin Scheme.
Q. Is it mandatory to follow Margin Scheme for a supplier dealing in second-hand goods?
No. It is not mandatory to follow margin scheme for a supplier dealing in second-hand goods.
Q. How are countries other than India taxing second-hand goods transactions?
Many of the countries having VAT/GST laws have structured margin schemes for dealers in second-hand goods. Countries like Singapore, Malaysia have specific rules and guidance notes for taxes on second-hand cars. New Zealand specifically excludes "livestock" and "goods consisting of any fine metal of any degree of purity" from the definition of second-hand goods, which is quite logical. Countries like Albania, Belgium, Finland, Israel, Italy, Mauritius, UK, etc. have special arrangements by way of profit margin schemes and simplified tax measures for dealers of art works, collectibles, antiques etc. The transactions of second-hand goods being sold by non-taxable individuals not having business are exempt in most of the countries across the globe.
Registration
Q. Is it mandatory for a supplier to obtain GST registration if his total supplies exceed the minimum registration threshold but the taxable supplies as per margin scheme are below the minimum threshold?
Yes. It is mandatory to obtain registration as the aggregate supplies (gross) exceed the minimum threshold.
Q. Is a separate registration required for availing the benefit of Margin Scheme?
No. There is no separate registration required. Any supplier registered normally under GST, can avail the benefit of Margin Scheme, subject to the conditions specified under Rule 32(5).
Q. Can a person have another business vertical along with the business of second-hand goods?
Yes. There are no restrictions and a person can have multiple business vertical. However, the benefits of Margin Scheme shall be restricted only to the valuation of second-hand goods business.
Q. Can a normal supplier, not dealing in second-hand goods, sell its used traded goods under the Margin Scheme?
No. The benefit of Margin Scheme can be availed by the supplier only if there is regular dealing in buying and selling of second-hand goods.
Q. Can a normal supplier, not dealing in second-hand goods, sell its old capital assets / fixed assets under the Margin Scheme?
No. The benefit of Margin Scheme cannot be availed for sale of old capital assets / fixed assets.
Q. Is GST payable when an individual sells second-hand goods being his personal goods and belongings, vehicle, jewellery, etc. and not involved in any regular business as such?
No. Such transactions are not under the purview of GST as there is no business or furtherance of business by the supplier.
Margin Scheme
Q. What is the value of the supply of second-hand goods as per Rule 32(5)?
The value of supply shall be the difference between the selling price and the purchase price.
Q. Is the value of supply different in case of goods sold at a loss?
Yes. whenever the difference between the selling price and the purchase price is negative, the value of such supply shall be considered as Nil.
Q. Can a supplier set-off the loss on selling some second-hand goods against the profit on selling other second-hand goods while paying GST?
No. As per Rule 32(5), where the second-hand goods are being sold at a loss resulting in negative margin, the value of such supply shall be Nil. Hence, the loss cannot be set off against the profits.
Q. What are the basic conditions to avail the benefit of Margin Scheme?
- The supplier must to be dealing in buying and selling of second-hand goods
- The goods being bought / sold must be used earlier
- The goods being sold must be pre-owned by someone else other than the supplier
- There should be no major processing on such goods, which changes the nature of goods.
- The supplier must not have availed the Input Tax Credit on the purchase of such second-hand goods.
Q. Does a supplier dealing in second-hand goods need to pay GST on the purchase of goods from an unregistered person?
No. Such purchases from unregistered persons are specifically exempted from GST as per notification [Notification No. 10/2017-Central Tax (Rate) dated 28.06.2017]
Q. Does a supplier, dealing in second-hand goods, need to pay GST on the purchase of goods from a registered person?
Yes. There is no exemption for the purchase of second-hand goods from a registered person and hence the supplier has to pay GST as per the tax invoice received from the registered person.
Q. In the above case, can the supplier avail Input Tax Credit for the GST paid on purchase of second-hand goods from a registered dealer?
No. As per Rule 32(5), a supplier can follow margin scheme only if he has not availed Input Tax Credit on the purchase of such second-hand goods. [GST AAR Karnataka in Advance Ruling No. KAR ADRG 15/2020 Re: Attica Gold Pvt. Ltd.]
Q. Can unboxed goods be considered as second-hand goods?
No. Mere unboxing of goods does not make the goods second-hand or used. Hence, selling of unboxed goods and selling without usage cannot be considered for availing margin scheme.
Q. Can refurbished goods be considered as second-hand goods?
Yes. Selling of refurbished goods can be considered as second-hand goods and margin scheme can be applied to such goods. However, only minor refurbishment is allowed. In case of any major refurbishing where the nature of goods change, does not qualify for the margin scheme benefit.
Q. Can a supplier dealing in second-hand goods availing the benefit of Margin scheme, sell its old capital assets / fixed assets under the Margin Scheme?
No. The benefit of Margin Scheme cannot be availed for sale of old capital assets / fixed assets even by a second-hand goods dealer.
Q. Is a supplier following margin scheme required to issue a tax invoice for supply of second-hand goods?
No. If margin scheme is opted for selling second-hand goods, the person supplying the goods shall not issue any taxable invoice and the person purchasing such goods cannot claim any ITC on these goods.
Q. How are the value additions to the second-hand goods to be treated under margin scheme?
In case any value is added to the second-hand goods by way of repair, refurbishing, reconditioning etc. over and above the sale value, the same shall be added to the value of goods and be part of taxable margin.
Q. Can margin scheme be availed in case of inter-state supply of second-hand goods?
Yes. The margin valuation scheme can be availed for both, intra-state as well as inter-state supplies. [GST AAR Rajasthan in Advance Ruling No. RAJ / AAR / 2018-19 / 35 Re: Shambhu Traders Pvt. Ltd.]
Q. Can a supplier availing Margin scheme, take Input Tax Credit on expenses (other than purchases of second-hand goods) ?
Yes. Rule 32(5) restricts Input Tax Credit availment only on the purchase of second-hand goods, which are further sold under margin scheme. Hence, Input tax credit can be availed on all business expenses like rent, advertisement, commission, professional expenses, etc. (other than purchases of second-hand goods) subject to the basic conditions of Input Tax Credit availment specified in Section 16 to 21 and Rules 36 to 45. [ GST AAR Karnataka in Advance Ruling No. KAR ADRG 40/2022 Re: Attica Gold Pvt. Ltd. ]
Compliance
Q. Where should the supplies of second-hand goods appear in the monthly return GSTR 3B?
The goods being sold under Margin Scheme are neither zero-rated supplies nor Nil-rated or exempted supplies. Hence, the total supplies of second-hand goods should be mentioned against "Outward taxable supplies" in table 3.1 wherein the total taxable value shall be the taxable margin value of second-hand goods.
Q. How to show the supplies of second-hand goods in the monthly return GSTR 1?
The total supplies of second-hand goods should be mentioned against "Outward taxable supplies" in table 4, 5 and 7, as applicable, wherein the taxable value shall be the taxable margin value of second-hand goods on which taxes are being paid.
Q. Is it mandatory to generate e-way bill, where second-hand goods are being supplied and the gross value exceeds the minimum threshold limit for e-way bill?
Yes. E-way bill rules shall apply to all the supplies of second-hand goods in the same manner as they apply to normal goods. Even if the taxable value of such goods are below the threshold limit for e-way bill but the gross value exceeds the same, it is mandatory to generate an e-way bill for such transfers.
Q. Is it mandatory to follow e-invoicing rules for second-hand goods?
Yes. It is mandatory to follow e-invoice rules even for second-hand goods, where the aggregate annual turnover (gross) exceeds the specified turnover limit for e-invoice (At present, the threshold is INR 10 Crores)
References
- The Central Goods and Services Act
- Integrated Goods and Services Act
- Determination of Value of Supply Rules
- FAQs on GST by CBEC, New Delhi
- Circulars and Notifications
- Karnataka GST Advance Ruling No. KAR ADRG 15/2020 Re: Attica Gold Pvt. Ltd.
- Rajasthan GST Advance Ruling No. RAJ / AAR / 2018-19 / 35 Re: Shambhu Traders Pvt. Ltd.
- Karnataka Advance Ruling No. KAR ADRG 40/2022 Re: Attica Gold Pvt. Ltd.
- Various other GST rulings
- Dictionary: Collins Dictionary and Oxford English Dictionary
- Malaysia - Guide on Relief for second-hand goods (Margin Scheme) issued by Royal Malaysian Customs
- Singapore - GST Guide for Motor Vehicle Traders (Second Edition) issued by Inland Revenue Authority of Singapore IRAS
- New Zealand - GST on special supply rules
The author can be reached at capratikd@gmail.com
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