2022 (2) TMI 993 - AAR - GST

Levy of GST - Valuation - amount paid to the owner of the car and amount incurred for the refurbishment of the said car - includible in the purchase price so as to deduct the same from the selling price of the old and used refurbished car to arrive as the margin, or not - applicability of N/N. 8/2018-CT (Rate) dated 25.01.2018 - HELD THAT - This notification shall not apply, if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act. 2017, CENVAT as defined in CENVAT Credit Rules, 2004 or the input tax credit of Value Added Tax or any other taxes paid, on such goods - the Notification exempts the goods specified in column (3) falling under heading/Tariff Item as specified in column 2 from so much of tax as is in excess of amount calculated at the rate specified in the corresponding entry in column 4 of the table to the said notification on the value that represent margin of the supplier on supply of such goods. As per explanation -(ii), margin of supplier shall be the difference between the selling price and the purchase price. From the plain reading of the explanation-(ii) to the aforesaid Notification it is observed that the explanation (ii) undoubtedly/clearly used the word purchase price not the purchase cost of goods. It means only the amount paid by the applicant at the time of purchase of used cars can be considered as purchase price there is no provision in the said notification to include the cost of refurbishment in the purchase price. Therefore, it is found that there is no reason to include cost of refurbishment in the purchase price for calculation of margin - it is settled jurisprudence principle that when the words of a statute are clear, plain and unambiguous, i.e. they are reasonable susceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of consequences. Moreover, if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense . Thus, the amount paid to the owner of the car and amount incurred for the refurbishment of the said car are not includible in the purchase price so as to deduct the same from the selling price of the old and used refurbished car to arrive as the margin for the purpose of valuation and levy under Notification No. 08/2018-CT(Rate) dated 25.01.2018.

Summary

Issues Involved:
1. Whether the amount paid to the owner of the car and the amount incurred for the refurbishment of the said car are includible in the purchase price for calculating the margin under Notification No. 08/2018-CT(Rate) dated 25.01.2018.

Issue-Wise Detailed Analysis:

1. Applicant’s Business Model and Submission:
The applicant plans to purchase old and used cars, mainly from unregistered persons but also from registered corporates. These cars will undergo an internal inspection and refurbishment to make them marketable. The refurbishment includes various repairs and replacements (e.g., tyre change, oil change, denting, painting, etc.). The applicant will sell these refurbished cars without claiming Input Tax Credit (ITC) on inward supplies or refurbishment costs. The applicant seeks clarification on whether the refurbishment costs should be included in the purchase price for calculating the margin under Notification No. 08/2018-CT (Rate).

2. Legal Provisions and Interpretation:
The relevant legal provisions include Section 7 and Section 9 of the Central Goods and Services Tax Act, 2017, which define "supply" and the levy of GST, respectively. Notification No. 08/2018-CT (Rate) specifies that GST on old and used motor vehicles should be calculated based on the margin, defined as the difference between the selling price and the purchase price. The applicant argues that the refurbishment costs should be included in the purchase price to avoid double taxation and ensure the margin reflects the true cost.

3. Analysis of Notification No. 08/2018-CT (Rate):
The notification exempts certain intra-state supplies of old and used motor vehicles from excess tax, calculating the tax on the margin. The margin is defined differently for registered persons who have claimed depreciation and those who have not. For those who have not claimed depreciation, the margin is the difference between the selling price and the purchase price. The applicant contends that "purchase price" should include refurbishment costs to reflect the true cost and avoid double taxation.

4. Jurisprudence and Accounting Standards:
The applicant cites various case laws and accounting standards to support their interpretation that refurbishment costs should be included in the purchase price. They argue that the cost of refurbishment is directly related to the enhancement of the car's sale value and should be considered part of the purchase price. The applicant also references the Indian Accounting Standard (Ind AS) 2, which defines the cost of purchase for inventories, including costs directly attributable to bringing the goods to their present location and condition.

5. Authority’s Findings and Conclusion:
The Authority for Advance Ruling (AAR) examined the submissions and arguments presented by the applicant. The AAR noted that the notification clearly uses the term "purchase price," not "purchase cost." Therefore, only the amount paid to the owner at the time of purchase can be considered the purchase price. There is no provision in the notification to include refurbishment costs in the purchase price for calculating the margin. The AAR emphasized that the words of the statute are clear and unambiguous, and the courts are bound to give effect to their natural and ordinary meaning.

Ruling:
The AAR ruled that the amount paid to the owner of the car and the amount incurred for refurbishment are not includible in the purchase price for calculating the margin under Notification No. 08/2018-CT (Rate) dated 25.01.2018. Therefore, the margin should be calculated as the difference between the selling price and the purchase price, excluding refurbishment costs.