GST UPDATE ON SUPPLY OF SECOND HAND CARS

GST UPDATE ON SUPPLY OF SECOND HAND CARS

The taxable event under GST is supply of goods or services or both. The scope of ‘Supply’ has been defined under section 7 of the CGST Act, 2017, including the activities mentioned in Schedule I and Schedule II of the act. Schedule I talks about the activity of permanent transfer of business assets with or without consideration to be treated as supply if on such assets input tax credit has been availed. Whereas Schedule II states that the transfer of business assets whether or not for consideration shall be supply of goods under the directions of authorized person. In Schedule II, there is no condition regarding input tax credit availment. Therefore, in case of transfer of business assets even if credit is not availed and whether or not for a consideration, will be leviable to GST by virtue of schedule II to CGST Act, 2017.

Motor vehicles attract the highest GST of 28 percent plus cess based on body type and engine capacity. The tax will apply only on sale of second-hand cars sold by registered vendors as supply of business assets. The GST rates for second-hand car transactions will be the same as the new cars of the same make — 28 per cent for small cars or 43 per cent for all the other cars (including cess).

It is worthwhile to mention here that the cars form important part of assets of every business and significant amount of GST is involved in the total purchase price of car. However, being restricted in section 17(5) of CGST Act, 2017; credit is not allowed on cars. Also, since these are sold after using it for few years, it is deemed as supply by virtue of schedule II of CGST Act, 2017. Therefore, the tax is levied at such a high rate as in the case of sale of new car. As such, there is high burden of tax on the sale of such used business assets like cars.

Also, there is reverse charge on the old vehicles purchased from Central & State Government or Local authority or union territory. Further, though government has given some relaxation by providing the abatement of 35% on lease and sale of motor vehicle purchased before 1.7.2017 vide Notification no. 37/2017-Central Tax (Rate) dated 13th October, 2017 and Notification no. 38/2017-Integrated Tax (Rate) ,dt. 13-10-2017; yet the amount of tax comes on higher side looking to the fact that no ITC was availed at the time of purchase. This ultimately increases the cost of running the business.

Also, government has given relaxation to the dealers of second hand goods by introducing the margin scheme under rule 32(5) of the CGST Rules, 2017. In this rule, it has been prescribed that the buying and selling of second-hand goods will not attract Goods and Services Tax (GST) if sold at a price cheaper than the purchase price if no input tax credit has been availed on the purchase of such goods. However, no such relaxation is given to normal tax payers. Thus, government should take some steps to ease down the tax burden in such cases where the ITC is not claimed initially. It harrasses the assessees as the tax is levied at such a high rate at each stage and no ITC is allowed.

The content of this GST update is for educational purpose only and not intended for solicitation.

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GST UPDATE ON SUPPLY OF SECOND HAND CARS

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