Applicability of GST on sale of Used Motor Vehicles

[Dinesh Singhal]

Gujarat Authority for Advance Ruling (‘AAR’) in the case of IN RE: M/S. DISHMAN CARBOGEN AMCIS LIMITED [2022 (6) TMI 133 - AUTHORITY FOR ADVANCE RULING, GUJARAT] “the applicant” has ruled that the value to be considered for sale of used motor vehicle would be the difference between Sale price and WDV on date of sale under Income Tax Act, 1961. Captioned ruling has been analyzed in this update.

A. FACTS OF THE CASE (relevant extracts)

• The applicant had purchased a new motor vehicle on 16^th February 2018 for its business use.

• The applicant did not avail the GST Input Tax Credit on the said vehicle and instead capitalized the GST amount as well and claimed applicable depreciation under Income Tax Act, 1961.

• The applicant now wishes to sale the motor vehicle.

B. QUESTIONS BEFORE THE AAR (relevant extracts)  

• On what value, the new car purchase by the company is sold after using it for business purpose, shall the GST be charged? Whether the value of old and used car, sold by the company as mentioned above, can be taken as the value that represent margin of the supplier, on supply of such car, and whether the GST can be charged on such margin?
• At what rate of GST, the new car purchase by the company is sold after using it for business purpose, shall the GST be charged?

C. CONTENTION OF THE APPLICANT 

• That the ITC was not claimed at the time of purchases since it is blocked U/s 17(5) of CGST Act, 2017

D. RELEVANT LEGAL PROVISIONS REFERRED 

• Notification 8/2018 -CT (R) dated 25^th January 2018

E. OBSERVATION AND RULING BY THE AAR 

• AAR noted that since ITC has not been availed on Motor Vehicle at the time of purchases, it would be covered under Notification 8/2018-ct(R) dated 25^th January 2018 as applicable for old and used cars. 

AAR finally ruled as under on the stated questions:

• The Value for intended supply shall be the difference between the consideration received for supply of said car and the depreciated value of the said car on the date of supply as per Income Tax Act, 1961.

• GST rate leviable is 18% (9% CGST & 9% SGST).

F. Our comments  

In this ruling, AAR has specified the tax incidence on used vehicles as stated in Notification 8/2018 – CT(R) dated 25^th January 2018. It states that the GST shall be discharged by seller on margin to be worked out on following basis:

• In case, depreciation under Income Tax Act is claimed, then sale value as reduced by written down value of asset on the date of sale. In case, this value is negative, then no GST would be charged.

• In other cases, sale value as reduced by purchase value of asset. In case, this value is negative, then no GST would be charged.

It needs to be noted that the above stated margin-based taxation would not be applicable if the supplier of such goods has availed ITC under GST regime or CENVAT/ VAT under pre-GST regime on such goods.

(Author can be reached at [email protected] or [email protected]). 

Discussions to this article

[Syamaprasad Menon]

Please also explain the applicability of GST on used commercial vehicles used for business purposes on which input GST/VAT had been claimed

[Dinesh Singhal]

In my view, GST on sale of commercial vehicles (where ITC has been availed) would be charged at applicable rates on transaction value or value as per section 18(6) whichever is higher.