2022 (5) TMI 402 - AAAR - GST

Levy of GST - Valuation - determination of margin - activity of purchase of old and used motor vehicles and then sale of these motor vehicles after refurbishment - claim of deduction of cost incurred on refurbishment from the margin - AAR rejected the argument of the appellant - Notification No. 8/2018-CT (Rate) dated 25-01-2018 - HELD THAT - The appellant s main thrust is that to calculate margin, purchase cost should be treated as purchase price. We observe that our legislature has wisely used the word purchase price to calculate the margin as benefit of notification will not be available, if the appellant has availed input tax credit. We find that the availment of this notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018 is optional. If the appellant wishes to avail input tax credit on the components used in the refurbishment of the old and used car, they can very well avail the same without availing benefits of the said notification. However, if the benefit of the notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018 is to be availed, then the conditions for the same have to be followed. From the plain reading of the explanation (ii) to the notification No. 8/2018 -Central Tax (Rate) dated 25th January, 2018, it is noticed that the explanation (ii) clearly used the word purchase price not the purchase cost of the goods. It means only the amount paid at the time of purchase of used and old cars can be considered as purchase price for the purpose of this notification.

Summary

Issues Involved:
1. Whether the cost of refurbishment should be included in the "purchase price" for calculating the margin under Notification No. 8/2018-CT (Rate).
2. Interpretation of the terms "purchase price" and "purchase cost" under the said notification.
3. Applicability of Section 15(1) of the CGST Act for determining the value of supply.

Detailed Analysis:

Issue 1: Inclusion of Refurbishment Cost in "Purchase Price"
The appellant argued that the cost of refurbishment should be included in the purchase price to calculate the margin for GST purposes. They contended that the term "purchase price" should encompass all costs incurred to make the car marketable, including refurbishment. The Authority for Advance Rulings (AAR) Rajasthan, however, held that the term "purchase price" refers only to the amount paid at the time of purchase and does not include refurbishment costs. The appellate authority upheld this view, stating that the notification clearly uses "purchase price" and not "purchase cost," and thus only the amount paid at the time of purchase can be considered.

Issue 2: Interpretation of "Purchase Price" and "Purchase Cost"
The appellant argued that the terms "purchase price" and "purchase cost" should be interpreted harmoniously to avoid absurd results. They provided a detailed analysis and practical examples to illustrate that excluding refurbishment costs from the purchase price would lead to double taxation and an inaccurate calculation of the margin. They cited various legal principles and case laws to support their argument that the term "price" should include all related charges. However, the appellate authority held that the legislature intentionally used "purchase price" to exclude refurbishment costs and that the benefit of the notification would not be available if input tax credit is availed.

Issue 3: Applicability of Section 15(1) of the CGST Act
The appellant contended that the value of supply should be determined as per Section 15(1) of the CGST Act, which defines the transaction value as the price actually paid or payable for the supply of goods. They argued that the refurbishment costs should be included in the purchase price to reflect the true margin. The appellate authority, however, clarified that the notification No. 8/2018-CT (Rate) specifically defines the value for calculating the margin, and thus Section 15(1) cannot be applied for this purpose. The authority emphasized that the notification's conditions must be followed to avail its benefits.

Conclusion:
The appellate authority upheld the AAR's ruling that the term "purchase price" under Notification No. 8/2018-CT (Rate) refers only to the amount paid at the time of purchase and does not include refurbishment costs. The authority concluded that the appellant must follow the specific provisions of the notification to avail its benefits and cannot apply Section 15(1) of the CGST Act for determining the value of supply in this context. The appeal was disposed of accordingly.