Margin scheme, Goods and Services Tax - GST

[Avesh Jain]

Can I sell used goods under margin scheme purchased from a registered vendor when payment made to the vendor bank account, No ITC passed or claimed on the purchase but vendor didn't issue any invoice for the purchase

Posts / Replies

[GAGAN KEDIA]

Rule 32 guides this situation. 

Condition for margin scheme is selling as such (with minor improvements if required) & not taking ITC on the purchases.

If you haven't taken ITC and it can be proved in your returns, There seems to be no issue in going ahead with margin scheme.

P.S. all other conditions of margin scheme to be followed. 

[YAGAY andSUN]

That's a very relevant and nuanced question involving the margin scheme under GST (Rule 32(5) of CGST Rules). Let's address this step-by-step.

🧾 Your Query:

Can I sell used goods under margin scheme purchased from a registered vendor, when:

• Payment is made to vendor’s bank account,
• No ITC claimed or passed on the purchase,
• Vendor did not issue any invoice.

✅ Short Answer:

Yes, you may sell such goods under the margin scheme, provided certain conditions are met, and you maintain proper documentation, even though no purchase invoice was issued.

🔍 Legal Basis: Rule 32(5) of CGST Rules:

“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), and no ITC has been availed on the purchase of such goods, the value of supply shall be the margin between selling price and purchase price.”

✔️ Key Requirements:

• You deal in second-hand goods.
• No ITC has been claimed on the purchase.
• Goods are sold as-is or with minor processing.
• The purchase price and sale price are identifiable.

🧩 Issue of No Invoice from Vendor

Now, coming to the crux of your query:

Even though the supplier did not issue an invoice, you can still apply margin scheme if you can substantiate the following:

✅ 1. Payment Evidence:

You have made payment to the vendor via bank account — this helps establish a verifiable purchase price.

✅ 2. Proof of Goods Received:

Maintain:

• Delivery challan (if any),
• Photographs of the goods (before and after),
• Entry in stock register,
• Any agreement or communication with vendor.

✅ 3. Declaration of No ITC Claimed:

You must not claim ITC on the purchase. If no tax invoice is issued, there’s no ITC implication, so you're compliant.

✅ 4. Documentation Substitution:

If invoice is missing, you can create a self-invoice under Rule 46(f) for purchases from unregistered persons or in cases where invoice is unavailable. Though your vendor is registered, in practical terms, self-invoicing can serve as a record to establish the purchase.

⚖️ Key Risk Area:

• The absence of a tax invoice from a registered vendor may raise red flags in audit — as the assumption is that all registered persons must issue a tax invoice.
• But since you haven’t claimed ITC and are under the margin scheme, the risk is more procedural than substantive.
• You may be asked to justify the transaction – but with solid supporting documentation and explanation, the margin scheme can still apply.

📝 Recommended Compliance Steps:

1. Prepare a self-invoice for internal records.
2. Maintain:
   • Payment proof (bank statement),
   • Purchase price determination basis,
   • Photos or condition reports of the goods,
   • Stock records.
3. Mention the transaction and its treatment clearly in your accounts.
4. At the time of sale, raise a proper margin scheme invoice under Rule 32(5).

✅ Conclusion:

Yes, you can apply margin scheme, even when:

• Goods are bought from a registered vendor,
• No invoice is issued,
• No ITC is availed,
• Payment is traceable through banking channel.

Just ensure you build strong documentation to support the purchase and demonstrate compliance with margin scheme conditions.

🧾 1. Self-Invoice Template (For Purchase under Margin Scheme – when vendor didn't issue invoice)

[Your Company Name]

Address: [Your Full Address]

GSTIN: [Your GSTIN]

Self-Invoice (For Accounting Purpose Only)

Under Rule 46(f) – No ITC Claimed

Invoice No.	INV/SELF/001
Date	[DD/MM/YYYY]

Vendor Details (Registered Vendor)

• Name: [Vendor Name]
• GSTIN (if known): [Vendor GSTIN]
• Address: [Vendor Address]

Purchase Details

Description of Goods	Quantity	Purchase Price (₹)	Remarks
Used [Item Name]	1	₹XX,XXX	No invoice received; payment via bank

Total Purchase Value: ₹XX,XXX

ITC Claimed: ❌ No

Mode of Payment: [Bank Transfer – UTR No. XXXXXXX]

Purpose: Purchase of second-hand goods – eligible for margin scheme under Rule 32(5)

Authorized Signatory

(Signature, Name & Designation)

🧾 2. Sales Invoice Template (Under Margin Scheme – Rule 32(5))

Tax Invoice (Under Margin Scheme – Rule 32(5), CGST Rules)

[Your Company Name]

Address: [Your Address]

GSTIN: [Your GSTIN]

Invoice No.: MS/2025/001

Date: [DD/MM/YYYY]

Customer Details:

• Name: [Customer Name]
• Address: [Customer Address]
• GSTIN (if applicable): [GSTIN]

Item Details:

Description	Quantity	Sale Price (₹)	Purchase Price (₹)	Taxable Margin (₹)
Used [Item Name]	1	₹YY,YYY	₹XX,XXX	₹(YY,YYY - XX,XXX)

 

Tax Calculation on Margin:

Tax Type	Rate	Amount (₹)
CGST	9%	₹___
SGST	9%	₹___
Total Tax		₹___

Invoice Value: ₹(Margin + Tax)

Note:

• "No ITC available to recipient under margin scheme as per Rule 32(5) of CGST Rules."
• “Goods sold under margin scheme – tax payable only on the margin.”

Authorized Signatory

(Signature, Name & Designation)

[Sadanand Bulbule]

I endorse the exhaustive replies of the experts.