A person dealing in second hand goods ( Margin Scheme) [Rule 32(5) of CGST Rules] - GST Ready Reckoner - GST

Margin Scheme in GST Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing is such goods may be allowed to pay tax on the margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain. Valuation of Second Hand Goods [ Rule 32(5) of the GST Rules , read along with Notification No. 10 / 2017 -Central Tax (Rate) , date 28 Jun 2017] The taxable value of supply of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of goods shall be the difference between the purchase price and the selling price, provided no input tax credit has been availed on purchase of such goods. However, if the selling price is less than purchase price, that negative value will be ignored. Persons who purchase second hand goods after payment of tax to supplier of such goods will be governed by this valuation rule only when they do not avail input tax credit on such input supply. If input tax credit is availed, then such supply will be governed by normal GST valuation. Notification No. 10 / 2017 -Central Tax (Rate) exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under rule 32(5) of the CGST Rules, 2017 , from any supplier, who is not registered, from the whole of the central tax leviable thereon under section 9(4) of the CGST Act, 2017. In other words, if the supplier dealing in second hand goods and paying tax under margin scheme is not liable to pay tax on reverse charge basis on procurement of such goods from unregistered persons. Example :- Mr. Ramesh sells its old car to Sai Motors, who is dealing in old cars for Rs. 4.00 lakhs. Sai motors resells it for Rs. 4.70 Lakhs to Mr. B. value of supply in this case would be 0.70 lakhs . Further, XYZ is not required to pay tax on reverse charge on purchase of car from unregistered Mr. Ramesh, since the activity is exempt from GST. Value of supply of goods repossessed from a defaulting borrower. If the defaulting borrower is not a registered person , the purchase value will be purchase price in the hands of such borrower reduced by 5% points for every quarter or part thereof, between the date of purchase and date of disposal by the person making such repossession. In other word value of supply = Selling price - (purchase price of defaulting borrower - 5% per quarter or part thereof From the date of purchase to date of disposal) if the defaulting borrower is registered , the repossessing lender agency will discharge GST at the supply value without any reduction from actual/notional purchase value. Press release by Ministry of Finance dated 15 July 2017 applicability of the Margin Scheme under GST for dealers in second hand goods in general and for dealers in old and used empty bottles in particular Margin Scheme can be availed of by any registered person dealing in buying and selling of second hand goods [including old and used empty bottles] and who satisfies the conditions as laid down in Rule 32(5) of the Central Goods and Services Tax Rules, 2017. Key Note - 1) Margin scheme available for antiques as these are second hand goods. 2) No input tax credit if indirect expenses incurred. 3) No reverse charge on purchase of old goods. Examples:- Example 1:- A company M/s Car Source Ltd, which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March, 2022 make (Original price Rs. 5 lakh) for Rs. 3 lakhs from an unregistered person and sells the same after minor furbishing( repair cost 20,000/-) in July, 2022 for Rs. 3,50,000/-. The company does not avail any ITC. what will be value of supply if car sold after minor furbishing ( repair cost 20,000/-) in July, 2022 for Rs. 2,50,000/-? In this case The value of supply of services for GST purpose shall be Rs. 50000/-, i.e. (3,50,000 - 3,00,000) the difference between the selling and the purchase price of the company. The value of supply of services for GST purpose shall be Rs. NIL, i.e. (3,00,000 - 2,50,000) the difference between the selling and the purchase price of the company. In case any other value is added by way of repair, refurbishing, reconditioning etc., the same shall also be added to the value of goods and be part of the margin. If margin scheme is opted for a transaction of second hand goods, the person selling the car to the company shall not issue any taxable invoice and the company purchasing the car shall not claim any ITC. Example 2:- Mr. D (an unregistered person in GST) takes a loan of Rs. 4 lakhs from SBI for purchase of his new car of Rs. 5 lakh on 1 October 2019. since Mr. D could not repay the loan, SBI repossessed the car on 3 October 2021 (after two year). what will be value of supply of if buyer is registered? In this case when defaulting borrower is unregistered, value of car for the purpose of value of supply at the time pf repossession would be Rs. 3 lakh [5 lakh minus 40%(i.e.5% * 8 quarters) of 5 lakh]. when defaulting borrower is registered, value of car for the purpose of value of supply at the time pf repossession and sale the at 2 lakh, the value of supply of goods 2 lakhs. Case Law : IN RE: M/S. WHITE GOLD BULLION PRIVATE LIMITED ( 2023 ( 5 ) TMI 747 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA ) - it was held that the applicant purchasing second hand gold in the form of jewellery / parts of jewellery, from unregistered individuals and selling to registered / unregistered dealers, after melting the same, in the form of lumps / irregular shapes of gold, cannot pay GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of CGST Rules, 2017.