GST on second hand goods

Introduction

For the purpose of computation of GST on second hand goods let us divide the second hand goods into 2 parts:-

1. Second hand vehicles
2. Other Second hand goods

Concept of Margin Scheme under GST

In GST law the outward tax is always payable on the Sale Value of goods sold, like in earlier indirect laws. But in GST, there is a concept of Margin scheme under which the registered person is allowed to pay GST on only MARGIN/PROFIT portion. Similarly if there is loss, then no GST is payable.

This benefit of Margin is available in case of supply of Second hand goods to the registered person dealing in it.

Notification 10/2017 dated 28th June 2017 of Central tax rate deals with the concept of Margin scheme under GST. This notification comes to benefit the registered person who deals in buying and selling of second hand goods by exempting inward supply of second hand goods received by such person.

However, 2 conditions are there which must be complied with in order to avail the above benefit:-

1. Firstly the said registered person has to pay GST on outward supply of such second hand goods and value for paying outward GST on such goods must be determined by following provisions of Rule 32(5) of CGST rules 2017 (discussed below)

2. Secondly, the purchase of second hand goods must be made from unregistered supplier.

What is the value of Supply for Second hand goods?

Rule 32 of CGST Rules 2017 deals with determination of value in respect of certain supplies. There is a sub rule 5 of rule 32 which deals with valuation of second hand goods.

That is, this sub rule applies on Both Second hand vehicle and second hand goods too.

Let's discuss about it.

• It says that where a  (1) taxable supply is provided
• By a person who is in the business of 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 (2)value of supply = Selling Price - Purchase Price
• And if the Selling Price < Purchase price, then such negative value shall be ignored and thus no GST will be levied.

Proviso to Rule 32(5)

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.

(1)Taxable supply- For a transaction to be taxable under GST, it must satisfy all the following 6 parameters:-

1. Supply of goods or services. Supply of anything other than goods or services does not attract GST.
2. Supply should be made for a consideration.
3. Supply should be made in the course or furtherance of business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply
6. Supply should be made within the taxable territory

(2) As per notification 8/2018 dated 25.01.2018, if a person selling the second hand vehicle has claimed depreciation on it as per Section 32 of the Income tax act 1961,

Then Value of Supply Shall be calculated as {Sale Price- Depreciated Value of the asset}

From above we come to know that in case of second hand vehicles GST is levied on Profit amount only and similarly if there is loss on sale of vehicle then in such case no GST will be levic.

What if Input credit is availed on purchase of second hand goods?

If input credit is availed on inward supply of Second hand goods, then in such a case Margin Scheme shall not be available to the registered person as it will constitute violation of an important condition of Rule 32(5).

Consequently GST shall be payable on Outward supply of second hand goods instead of Margin amount.

Let's understand few examples on this rule to clarify the concept:-

1. Mr. Abc (unregistered person in GST) purchased a bike on 1st December 2018 for Rs. 60000 plus Rs. As GST. On 1st may 2019, it is sold to Mr. Xyz for Rs. 55000.

In such a case , NO GST WILL BE LEVIED. Why?-  Because there is no taxable supply of goods as the supply is made by non-taxable person.

2. Abc Pvt Ltd. Company has sold car for Rs. 4 Lakhs on 01.04.2019 which was purchased for Rs. 6 Lakhs on 01.04.2018. The company is registered under GST act and it charges depreciation on all assets as per income tax act.

Then in such case, GST WILL BE LEVIED AS IT IS TAXAABLE SUPPLY.

Value of Supply shall be Rs. 4 Lakhs less Rs. 3.4 Lakhs (Rs. 4 Lakhs*85%) = Rs. 0.6 Lakhs or Rs. 60000/-. Thus on this 60000 GST will be levied.

Rate of GST on Supply of second hand vehicles

Notification 8/2018 dated 25.01.2018 for Central Tax rate specifies GST rates as follows for Various second hand vehicles:-

• For Old and used LPG or CNG driven motor vehicles with engine capacity of 1200 cc or more and Length of 4000 mm or more -18%
• For Old and used Diesel driven motor vehicles with engine capacity of 1500 cc or more and Length of 4000 mm or more - 18%
• For Old and used Sports Utility Vehicle (SUVs)  with engine capacity of  1500 cc or more - 18%
• For all other vehicles not covered above - 12%

Rate of GST on Supply of second hand vehicles

Whenever a second hand article is sold other than vehicle and it is a taxable supply, then the GST rate for that particular article as mentioned in Notification 1/2017 dated 28th June 2017 of Central tax rate has to be applied.

For example, if second hand furniture is sold then rate of GST applicable on it is the GST rate mentioned in above notification for the fresh sale of furniture.