Vat on sale of old vehicle

This query is : Resolved

Shikha gupta (Querist)
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21 June 2022 Sir in 2016-17 my company had purchased a car and sold its old car to the agency from new car purchased. We had booked total amount including vat as value of car in fixed assets. Now assessing officer of Chandigarh is saying we have to pay the vat on sale of vehicle as they consider it as scrap sale? Is it right?

Please help its urgent

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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11 July 2024 In the context of VAT (Value Added Tax) treatment for the sale of a used vehicle when purchasing a new one, the approach can vary depending on the specific circumstances and local tax regulations. Here’s a general overview:

### VAT on Sale of Used Vehicle:

1. **Tax Treatment on Sale of Used Vehicle:**
- In many jurisdictions, including India, the sale of a used vehicle (often termed as scrap sale when sold to a dealer or agency) may attract VAT.
- The tax is typically levied on the margin or profit made on the sale of the used vehicle, not on the entire sale value. This is because VAT is a tax on value addition.
- The VAT liability would arise on the difference between the sale price and the residual book value (net of depreciation) of the vehicle.

2. **Booking of Purchase of New Vehicle:**
- When you purchase a new vehicle, including VAT as part of the cost in fixed assets is standard accounting practice.
- However, the sale of the old vehicle (to the agency) should ideally reflect the net amount received after deducting any residual book value of the old vehicle, not the entire sale price.

### Assessment Officer’s Perspective:

- The assessing officer’s viewpoint that VAT is applicable on the sale of the vehicle could be based on local interpretations or specific guidelines in Chandigarh.
- It’s possible that they consider the sale to the agency as a scrap sale, where VAT applies to the margin between the sale price and the residual value. This would mean VAT applies to the profit made on the sale.

### Actions to Consider:

1. **Review Local VAT Guidelines:** Look into the specific VAT rules and guidelines applicable in Chandigarh regarding the sale of used vehicles. Check if there are provisions for how VAT is calculated on such transactions.

2. **Consult a Tax Advisor:** Given the complexity and potential impact, it’s advisable to consult with a tax advisor or chartered accountant familiar with local VAT laws. They can review your specific case, assess the validity of the assessing officer’s claim, and provide guidance on how to proceed.

3. **Prepare Documentation:** Ensure you have all relevant documents related to the sale and purchase transactions, including invoices, sales agreements, and depreciation schedules. These will be crucial in supporting your position during any discussions or appeals.

4. **Respond to Notices Promptly:** If you’ve received a notice from the assessing officer, respond promptly and provide clarification supported by documentation.

### Conclusion:

While VAT on the sale of a used vehicle can be a nuanced area, it’s essential to understand the local tax regulations and seek professional advice to ensure compliance and address any discrepancies effectively. A tax advisor can help navigate through these complexities and ensure that your company’s tax obligations are met appropriately.