2025 (4) TMI 224 - AAR - GST

Valuation of outward supply as per rule 32 (5) of the CGST Rules 2017 - amount of difference as per Rule 32 (5) for dealing in second hand goods - Entitlement of ITC on repair/improvement cost - applicability of e way bill and e-invoicing on appellant - taxability on reverse or forward charge on purchase of second hand goods from registered/unregistered dealer. Can the applicant opt for valuation of outward supply as per rule 32 (5) of the CGST Rules 2017 for the new line of business solely ie only for dealing in second hand goods besides following regular rules for their existing business? - HELD THAT - Since nothing is produced which takes a contrary view it is held that the applicant can opt for valuation of outward supply in terms of Rule 32 (5) ibid for dealing in second hand goods while simultaneously following the normal valuation practice for their existing business. Can the applicant opt for valuation of outward supply only for acquisition made from unregistered dealer and for acquisition from registered dealer they continue to pay GST as regular mode ie by discharging GST on full amount of sales consideration and claim ITC on acquisition cost ? - HELD THAT - It is clear that the valuation proposed in terms of Rule 32 (5) ibid is at the option of the supplier and is not mandatory in terms of rule 32 (1) - Now as far as simultaneous availment of valuation procedure enumerated in rule 32 (5) in respect of second hand goods where the same are purchased from an unregistered person and opting out of the valuation prescribed under rule 32 (5) ibid in respect of purchases from registered persons wherein the applicant wishes to discharge GST on full amount of sales consideration and claims ITC on the purchase - it is found that this is not something which is barred either by the Act or the Rules. What will be the amount of difference as per Rule 32 (5) for dealing in second hand goods? Does purchase price as per Rule 32 (5) include cost of repair/improvement? - HELD THAT - As per rule 32 (5) computation of value in respect of margin scheme shall be difference between the selling price and the purchase price provided no input tax credit has been availed on the purchase of such goods. The procedure set forth in the rule is unambiguous. It does not provide for inclusion of cost of repair/improvement. The amount of difference as per Rule 32 (5) for dealing in second hand goods would be the difference between the selling price and the purchase price and would not include the cost of repair/improvement. If the purchase price does not include cost of repair/improvement than can ITC of such repair/improvement cost can be claimed? - HELD THAT - The wordings of Rule 32 (5) also known as margin rule clearly states that no ITC can be availed on the purchase. The rule provides for minor processing on the second hand goods ie used goods provided it does not change the nature of the product. If the Legislature intended on allowing ITC in respect of such minor processing rule 32 (5) ibid would have provided for availment of ITC in respect of such minor processing. That not being the case we hold that the applicant is not eligible for availment of ITC in respect of the cost of repair/improvement. Does e way bill and e-invoicing applicable for appellant if they follow margin scheme? If yes then which value should be shown in e-way bill and e-invoice and in which section as the data of e-way bill and e-invoice are getting auto populated in GSTR-1? - HELD THAT - As is evident e-way bill and e-invoicing does not find a mention under serial No. 2(a) to (g) of Section 97. For purchase of second hand goods from registered/unregistered dealer do appellant need to pay any tax on reverse charge/forward charge basis? - HELD THAT - Again as far as purchase of second hand goods from registered person is concerned we find that the question of the applicant paying tax under reverse /forward charge simply does not arise. This part of the question is vaguely framed. As far as the question relates to purchase of second hand goods from unregistered dealers is concerned it is found that the same is exempt from payment of tax under RCM in terms of notification No. 10/2017-CT (R) dated 28.06.2017 provided the supply falls within the ambit of intra-state supply. Conclusion - i) The applicant can opt for valuation of outward supply as per rule 32 (5) of the CGST Rules 2017 for the new line of business solely ie for dealing in second hand goods besides following regular valuation procedure for their existing business. ii) The applicant can opt for valuation of outward supply in terms of Rule 32 (5) ibid for purchases made from unregistered dealer and for purchases from registered dealer they can pay GST by following the regular mode ie by discharging GST on full amount of sales consideration and claim ITC . iii) The purchase price as per Rule 32 (5) will not include cost of repair/improvement. iv) ITC of repair/improvement cost cannot be availed by the applicant in case they are availing the benefit of Rule 32 (5) ibid. v) No ruling for question of applicability of e-way bill and e-invoicing under the margin scheme including the value to be shown in these documents. vi) No GST is to be paid under RCM for purchase of second hand goods from unregistered dealer if the supply falls within the ambit of intra state supply.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the applicant can opt for valuation of outward supply as per rule 32 (5) of the CGST Rules, 2017 for dealing in second hand goods while following regular valuation rules for their existing business.

2. Whether the applicant can choose the valuation method under rule 32 (5) for acquisitions from unregistered dealers while using the regular method for acquisitions from registered dealers.

3. Determination of the amount of difference as per Rule 32 (5) for dealing in second hand goods and whether the purchase price includes the cost of repair/improvement.

4. Whether ITC of repair/improvement cost can be claimed if the purchase price does not include these costs.

5. Applicability of e-way bill and e-invoicing under the margin scheme, including the value to be shown in these documents.

6. Tax obligations on reverse charge/forward charge basis for purchases of second hand goods from registered/unregistered dealers.

ISSUE-WISE DETAILED ANALYSIS

1. Valuation of Outward Supply for Second Hand Goods

- Relevant legal framework and precedents: Rule 32 (5) of the CGST Rules, 2017 allows the valuation of second hand goods based on the margin between selling and purchase prices, provided no input tax credit (ITC) is availed.

- Court's interpretation and reasoning: The court held that the applicant can opt for this valuation method for second hand goods while maintaining regular valuation for their existing business.

- Application of law to facts: The applicant is permitted to use the margin scheme for their new business line of second hand goods.

2. Valuation Method for Acquisitions from Unregistered vs. Registered Dealers

- Relevant legal framework and precedents: Rule 32 (1) of the CGST Rules provides that the valuation method is at the supplier's option.

- Court's interpretation and reasoning: The court found no legal barrier to using different valuation methods for purchases from unregistered and registered dealers.

- Application of law to facts: The applicant can use the margin scheme for unregistered dealer acquisitions and the regular method for registered dealer acquisitions.

3. Inclusion of Repair/Improvement Costs in Purchase Price

- Relevant legal framework and precedents: Rule 32 (5) does not explicitly include repair/improvement costs in the purchase price.

- Court's interpretation and reasoning: The court concluded that the purchase price for margin calculation does not include repair/improvement costs, supported by a precedent from the Rajasthan Appellate Authority.

- Application of law to facts: The margin is calculated solely on the difference between selling and purchase prices, excluding repair/improvement costs.

4. ITC on Repair/Improvement Costs

- Relevant legal framework and precedents: Rule 32 (5) prohibits availing ITC on purchases under the margin scheme.

- Court's interpretation and reasoning: The court held that ITC on repair/improvement costs cannot be availed as the rule does not provide for it.

- Application of law to facts: The applicant cannot claim ITC for repair/improvement costs when using the margin scheme.

5. Applicability of E-Way Bill and E-Invoicing

- Relevant legal framework and precedents: The court refrained from answering due to lack of specific mention in Section 97 (2) of the CGST Act.

- Court's interpretation and reasoning: The question was deemed outside the scope of the advance ruling application.

6. Tax Obligations for Purchases from Registered/Unregistered Dealers

- Relevant legal framework and precedents: Notification No. 10/2017-CT (R) exempts intra-state supplies of second hand goods from unregistered suppliers from central tax.

- Court's interpretation and reasoning: No tax is payable under reverse charge mechanism (RCM) for intra-state purchases from unregistered dealers.

- Application of law to facts: The applicant is exempt from paying GST under RCM for such purchases.

SIGNIFICANT HOLDINGS

- The applicant can use rule 32 (5) for second hand goods while following regular valuation for existing business.

- Different valuation methods can be used for acquisitions from unregistered and registered dealers.

- The purchase price for margin calculation excludes repair/improvement costs, and ITC on these costs cannot be claimed.

- The court refrained from ruling on e-way bill and e-invoicing applicability under the margin scheme.

- No GST is payable under RCM for intra-state purchases from unregistered dealers.