sale of car, Goods and Services Tax - GST

[DK AGGARWAL]

Sir

we want to sell the old car purchased before July 2107, registered in the name of Firm to another firm duly registered under GST.

Please inform if GST is applicable on sale of old car and if so whether GST input is available to the new buyer.

Please inform the rate of GST if applicable

Regards

D K Aggarwal

Posts / Replies

[ANITA BHADRA]

Dear Sir

Yes , GST is applicable ..

As per schedule 1 of CGST Act , permanent disposal of business Assets will be treated as supply .

Rate of GST will be 28%

ITC will not be available to New buyer as sec 17(5)(a) of CGST specifically states- ITC will not be available in respect of Motor Vehicle subject to certain conditions ie further supply of motor car etc etc .

Regards

CA Anita Bhadra

[Ganeshan Kalyani]

GST is applicable @ 28% plus cess.

[KASTURI SETHI]

There has been lengthy discussion on this issue in this forum so many times. Sale of car in this case is supply in furtherance of business. Hence GST applicable.

[CS SANJAY MALHOTRA]

Dear Friends,

I have different views that the sale of used car is not taxable which is area prone to litigation.

Firstly, Govt has come out with Notification No. 37/2017 CGST (Condition No 2) and Cess Notification No. 07/2017 thus providing the Value on which GST is to be paid for sale of used car purchased prior to 01.07.2017.

GST is to be levied at 28% + Applicable Cess on the 65% Value of consideration.

Secondly my views, which make used car not liable to GST. We all agree that the taxing the sale of Used Car results in Double Taxation i.e. one which is charged at the time of sale by Car Manufacturer and secondly when the registered person in GST sells off.

Important is the coverage in the definition of supply to attract GST Liability.

Definition of Supply is stated in Sec 7(1) of CGST Act and Supply includes (a) all forms of supply.........................in the course of furtherance of business. Reference should be made to definition of Business as placed in Sec 2(17) of CGST Act.

In the present case, the company business is not to sell the Cars and it has been held in catera of judgments that if the business is not done with an intention to sell cars, then the activity can't be classified as Business activity.

In order to be supply, above essentials is must or else GST is not applicable.

In short, depends upon the supplier whether he would like to take chance or not to fight the case if he opts for non payment of GST.

Interesting point to make note. Suppose person A (not in Business of Cars sales / purchase) in GST purchase Motor Vehicle and sells off after 2 years. He is not eligible to take ITC as per Sec 17(5) of CGST Act. If he is forced to pay GST at the time of sale, he stands to loose as double taxation arises.

Suppose person B (who is in Business of Cars sales / purchase) in GST purchase Motor Vehicle and sells off after 2 years. He is eligible to take ITC CGST Act. If he sells off Motor Vehicle, he has to pay. He will not stand to loose as he has availed ITC at the time of purchase and cost for his is less in comparison to Person A.

Law makers should have taken care while drafting the law that Tax Liability should not have been in place for for those who are not eligible for ITC and who are eligible for ITC.

[Ganeshan Kalyani]

Sri Sanjay Sir, I totally agree with your views. Why should a person pay tax twice on a particular product. If law tells to pay tax to the person not dealing in the same product then input tax credit should be allowed.

[KASTURI SETHI]

Sh.CS Sanjay Malhotra Ji,

Sir, Logic is convincing. Your suggestion is fully of substance.

[Ramaswamy S]

There is a clarification from CBEC wherein it is clarified that the GST is payable on the difference between the purchase (of second hand car) price and the selling price of the second hand car (to the third person).

Regards

S.Ramaswamy

[CS SANJAY MALHOTRA]

Sh. Ramaswamy ji,

It's not clarification but Notification No CGST 10/2017 dated 28.06.17 which is applicable to Dealer of Second Hand goods operating under Margin Scheme.

[KASTURI SETHI]

and Querist or his company is not a dealer of second hand goods.

[Ramaswamy S]

Thank you Mr Sanjay. I stand corrected. Its notification 10/2017 (post the clarification that I received from GST council through sms).

[Ramaswamy S]

I do not see it as a double taxation. The reason is as follows:

1. The sale of used car - disposal of asset and is a supply. Outward GST is applicable.

2. The reduction in the rate of tax at 65% of the CGST rate if the credit is not availed. Since ITC is not available, there is a reduction in the rate of tax, else the rate of tax would be the same at 28% +cess.

Regards

S.Ramaswamy

[ANITA BHADRA]

Interesting and informative discussions

[Ganeshan Kalyani]

Yes, indeed.

[CS SANJAY MALHOTRA]

Sh Ramaswamy ji,

Firstly GST Act provides tax on supply of business asset and not asset as both have varied meaning.

Secondly if tax is charged on same transaction twice, it’s double taxation whatever rate may be. Not to forget that this concessional rate is for 3 years and afterwards full 28% + cess. Can we say that it’s double taxation after 3 years.

We we have seen in past so many years that Notification is applicable only if Dept establishes the basic objective. Struck down many times by higher courts. Dept has to prove that the sale of car is business asset.

We are in this debate not to blindly follow the law laid down by Govt but to make them aware the deficiencies to amend the same before Apex court overrules their notification.

[KASTURI SETHI]

Sh.CS Sanjay Malhotra Ji,. Sir, you have gone into depth. Really it is peerless. Your come back in this forum has infused life in it. No. of questions per day has increased appreciably. I am relishing your replies. Thanks.

[balasundaram t]

I agree with CA Sanjai Sir

[Ramaswamy S]

I would like to refer to rule 32(5) of the CGST Rules which is akin to the case here.

32(5) - where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

It is highly prone to litigation yet nevertheless worth exploring.

regards

S.Ramaswamy

[CS SANJAY MALHOTRA]

Sh, Ramaswamy ji,

Present issue does not focus on second hand car sale, hence no concern for litigation for same. The Notification is absolute clear in such regard.

[RAJESH MANGAL AGRAWAL]

Thanks to all for a wonderful discussion.

Sirs all the discussion is going on because of Restriction on availment of Input Tax Credit on Motor vehicles as per Sec 17(5).

In my view we must check Schedule 1 & Schedule 2 of CGST ACT which are also Contradictory to each other.

The Schedule-1 deals with ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION.

The Entry 1 of Schedule 1 reads as under.

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

Here we have to consider the following points.

1) SCHEDULE 1 COVERS ALL SUCH ACTIVITIES WHICH DO NOT HAVE ANY CONSIDERATION.

2) THE ENTRY 1 COVERS ONLY THOSE TRANSACTIONS WHERE INPUT TAX CREDIT HAS BEEN AVAILED ON SUCH ASSETS.

Here the question is levy of GST is on sale of old car purchased before 01.07.2017 by the buyer.

1) From the above discussion it is clear that, as the car was purchased before 01.07.2017, there is no question of levy of GST while purchasing of impugned car by the original buyer, accordingly there is no question of availment of Input tax credit & IDEALLY GST SHALL NOT BE LEVIED ON SALE OF OLD CAR.

2) Suppose the car was purchased after 01.07.2017, then also availment of Input tax credit is restricted by sec 17(5) & IDEALLY GST SHALL NOT BE LEVIED ON SALE OF OLD CAR.

The Schedule-II deals with ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

The Entry 4 of Schedule 2 reads as under.

4. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

According to Schedule II , the sale of Old car will be treated as Supply of Goods.

The interesting part is here the pre-requirement of availment of Input tax credit is not attached here as given in Schedule-I.

Further SCOPE OF SUPPLY as defined in Sec7 is a inclusive definition and is a very wider term & is given as under.

Scope of supply.

7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

AS entry 4 of schedule II covers sale of old car & Schedule II is covered by clause (d) of sec 7(1) , THE SALE OF OLD CAR WILL BE LIABLE TO GST.

AS RIGHTLY SAID THE TAX & CESS RATE WILL BE SAME AS THAT OF NEW MOTOR VEHICLES ON 65% VALUE.

ALTHOUGH LOGICALLY IT IS NOT CORRECT TO CHARGE GST ON SALE OF OLD CAR BECAUSE OF DOUBLE TAXATION, STILL AS PER THE PREVALENT LAW AS ON TODAY GST IS LEVIABLE TILL THE SAME IS STRUCK DOWN BY THE COURTS.

[Venkatesh S]

Dear Sanjay,

Reduction of 35% in cess rate is applicable only for leased vehicles. My understanding is it is not applicable on sale of used cars.

[CS SANJAY MALHOTRA]

Mr. Venkatesh,

Request you to go through Point No 2 of Notification No 37/2017-CGST besides GST Council Press Release. Afterwards views most welcome.

[Keyur Mehta]

Dear Mr. Sanjay and Mr. Rajesh,

Your contribution on this post has been highly enlightening and detailed. A very healthy discussion. However, most confusing to conclude.

View presented by Mr. Rajesh leads to the conclusion that one should pay the tax going by the language in the Schedules. Whereas views presented by Mr. Sanjay leads to the conclusion that one should not pay the tax and awaken the Govt against such double taxing provisions.

Thanks once again for bringing lot of insight into the issue.

[NITIN LADDHA]

Dear Sanjay ji and Rajesh ji

Thanks for this post, very informative and useful.

I have one query regarding conditions of Notification No 37/2017-CGST, can we read both the conditions as ÁND' i.e 1) Motor Vehicle was purchased by Lessor..... AND 2) The Supplier of MV is registered person...? If this understanding is correct than it appears that the Notification No 37/2017 is only for Sale of Leased vehicles which were supplied on lease before 1 July 2017. Also the condition of applicability of this notification only till 1 July 2020 points in this direction.

I have a similar query as of D K Aggarwal Ji, for one of the client we have claimed deprecation on a MV as it is used in business and now need to dispose off the MV but not clear as to GST impact on such transaction ?

Both the arguments : 1) permanent disposal of business Assets- treated as supply and 2) Double taxation of transaction are compelling. Kindly guide.

[Vijay Singh]

After noti.no.08/2018 CGST (r) dtd.25.01.2018.

Pl explain the situation..

[Vijay Singh]

Pl explain the below situation..
If the depreciated value is 6L and selling price is 5.5 than if a firm want to sell a used car within the state .. what tax he have to pay.

Please refer the point 1 for purposes of this notification, -

(i) in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act,1961(43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored