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TMI Blog2022 (2) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the purchase price. From the plain reading of the explanation-(ii) to the aforesaid Notification it is observed that the explanation (ii) undoubtedly/clearly used the word purchase price not the purchase cost of goods. It means only the amount paid by the applicant at the time of purchase of used cars can be considered as purchase price there is no provision in the said notification to include the cost of refurbishment in the purchase price. Therefore, it is found that there is no reason to include cost of refurbishment in the purchase price for calculation of margin - it is settled jurisprudence principle that when the words of a statute are clear, plain and unambiguous, i.e. they are reasonable susceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of consequences. Moreover, if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense . Thus, the amount paid to the owner of the car and amount incurred for the refurbishment of the said car are not includible in the purchase price so as to deduct the same from the sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he car. Since these vehicles are meant for resale hence no other formality under the provisions of the Motor Vehicle Act 1988 is required to be undertaken to secure transfer of title of the vehicle. 4 That with purchase of such car. considering its condition and with an intent to make it marketable to sell in the open market as refurbished old/used car , certain cost of refurbishment on said car will be incurred which will include (but will not be restricted to):- a. Tyre change b. Oil change c. Denting d. Painting e. Change defective parts such as broken light, wheel cover, etc. f. Wiper blade or rear wiper g. Gas for air conditioning h. Dry clean i. Box for power steering j. Wheel cap k. Engine oil I. Air filter m. Coolant n. Number Plate o. Seal cover p. Clutch cable q. Monogram set r. Car washing 5. That after undertaking such cost, the refurbished car will be ready for re- sale and shall be displayed for to the interested and prospective buyers . 6. That apart from such refurbishment cost, cost will also be incurred towards fuel (i.e. petrol and diesel) for the purpose of prepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined as margin. The copy of said notification is enclosed and marked as Annexure-3. 13. That in the Explanation to the said notification, where depreciation under the provisions of the Income Tax Act 1961 is not claimed, then the margin is required to be determined in accordance with the provisions of the Explanation (ii). The said explanation (ii) is read as under:- (ii) in any other case, the value that represents the margin of supplier shall be, the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored. 14. That thus the tax is leviable as per the said notification on the margin where in accordance with the explanation (supra) the margin is difference between the selling price and the purchase price. 15. That the question has been put up through the given application for Advance Ruling from the Authority for Advance Ruling in context of the aforesaid explanation (ii) to understand for the purpose of valuation whether the amount paid to the owner of the car and amount incurred for the refurbishment of the said car are includible in the purchase price so as to deduct the same from the selling price of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to Section 7 of Central Goods and Services Tax Act. 2017 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: 2. According to Section 9 of the Central Goods and Services Tax Act 2017 which is charging section for GST 9. (1) Subject to the provisions of sub-section (2). there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may he prescribed and shall be paid by the taxable person. 3. That rate of GST (CGST) on supply of motor car. which is covered by the definition of goods as given under Section 2(52) of the CGST Act 2017 is notified under Schedule IV of Notification No. 1/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Description of Goods Rate (1) (2) (3) (4) 1. 8703 Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 min or more. Explanation. - For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under. 18% 2 8703 Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm Explanation . - For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under. 18% 3 8703 Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as a fixed asset or not by the person claiming the benefit of given notification. 14. That whether a motor vehicle is a fixed asset or not, depends upon the facts and circumstances of each case. Only in the cases where the motor vehicle has been acquired with an intention to use in the business but not to resale then in accordance with the accounting principles, the same motor vehicle is treated as a fixed asset, both in the books of accounts and also under the provisions of Section 32 of the IT Act 1961. In such a situation, depreciation at specified rate is claimed on such motor vehicle. 15. That an important point for given consideration is that when a motor vehicle is treated as fixed asset then the intention of its owner is to use such motor vehicle in the course of business for a reasonable duration of time which mostly extends up to the life of such motor vehicle. The motor vehicle is procured with an intention to possess and use it for a period of more than 1 year at least. The intention to procure such motor vehicle is never to earn profit by selling it in the market. Only when such asset is not of use or better alternative of same is available for the user a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed persons covered by the provisions of explanation (i) to the notification i.e. who claim depreciation under the IT Act 1961 on cost of motor vehicle generally supplies such used and old motor vehicle to the persons like the applicant in given case who only procure the used and old vehicle. That is why the margin for the purpose of given notification in case of applicant is governed by the provisions of explanation (ii) to the notification which is different from the situation covered under Explanation (i) where generally cars used as asset are sold. 22. That on perusal (ii) to the notification, it is clear that margin is identified as difference between the selling and the purchase price. However, on further perusal it is clear that meaning of word selling price and purchase price has not been given in the explanation or anywhere in the notification. Thus it becomes important to bring out the contextual meaning of the word selling price and purchase price used in the notification. 23. That in case of Maheshwari Fish Seed Farm vs T. Nadu Electricity Board And Anr on 16 April, 2004 it was by the Hon'ble Supreme Court that It is settled rule of interpretation that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een undertaken on such car. The customer will be made aware about necessary corrections and activities which have been undertaken to ensure the car is usable and the customer shall be able to reap its benefit while using the same. Hence in the open market it is very evident between the prospective customer and the applicant or other players that car which is being sold is not just and old or used car but certain refurbishment activities in form of goods and work has been undertaken. 28. That in fact during the course of refurbishment, the property of goods used in the undertaking such refurbishment for instance, replaced tyre, wiper, seat cover, paint etc also passes on to the customer as a part and parcel of the car only. The buyer will not be charged anything separately for such refurbishment. Hence all the cost of refurbishment is part and parcel of the cost of the old and used refurbished car. 29. That hence in this factual background it is brought on record that use of word purchase price in the explanation (ii) to the notification must be read in the context of old used and refurbished cars for which the term sale price used in the notification. Any amount which sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are or effort acquire . 33. That on reading of above, it is evident that purchase includes making an effort to bring goods to a location and condition where they are for use or for onward sale. 34. That in fact the given concept of sale price and purchase price also corroborates with the accounting principles and methodology to be followed by the applicant in its books of accounts which shall be in governed by the principles of the Accounting Standards as applicable in India. 35. That it has already been pointed out above that the old and used refurbished car shall not be a fixed asset for the applicant but rather it shall be an inventory item i.e. purchase of goods for the purpose of resale, hence its accounting shall be governed by the Ind AS 2 i.e. Indian Accounting Standard 2 which is for Inventories. 36. That the objective of said IND-AS 2 as set out by the law is read as under The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognised as an asset and carried forward until the related revenues are recognised This Standard deals with the determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice for the purpose of calculating margin and whereas for calculating sale price the value of total amount including the refurbishment recovery is also considered then the margin derived from such method shall be faulty and will lead to double taxation. 43. That in fact recently in the case of The Commissioner of Central Excise, Customs and Service Tax, vs M/s Sai Service Station Ltd reported in 2017 (7) GSTL 17 it was held by the Kerala High Court that, in similar facts matrix, the Hon'ble High Court noted that 26. In its books of account, the dealer reflects the 'refurbishment charges' the expenses, that is, the cost of spares, labour, denting and painting work, etc.. incurred by the dealer for renovating the used car. Though it refurbishes both the True-Value and the Non-True-Value cars, the dealer refurbishes the True-Value vehicles as per the MSIL guidelines. It collects the refurbishment charges separately from the buyer, besides the cost of the used cars. In short, the selling price of the used car includes the cost of the used car. the refurbishment charges, the management fee, free service and warranty, besides business margin. 44. That the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Government dated 16-12-1977 requiring a dealer to sell products at prices fixed by Government which included surcharge to be collected from dealers and deposited in oil pool account Appellant Company purchasing petroleum products from a refinery and paying sales tax on such products Vide government resolution Company had to sell its products at fixed prices inclusive of surcharge component Sales tax levied on c appellant at the first point of sale as the sale price charged exceeded 40% of the purchase price Appellant Company's sales tax liability determined on the second sale or resale of tax-paid goods deeming it the first point of sale Appellant contending sale price for the purpose of the Act should be determined after reducing the amount of surcharge paid into oil pool account High Court held surcharge was not statutory collection but was collected under executive instructions and cannot be excluded while d calculating the 'sale price' Whether amounting to double taxation Permissibility of Held, resale price in the instant case exceeded 40% of the purchase price, therefore, the resale price was deemed to be the first point sale S. 8(1) did not env ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istent therewith. 50. That in case of applicant, the quality of old and used refurbished car is governed by Section 16(3) of the aforesaid Act wherein the applicant shall be bound to make available and old and used by working car to the customer. In case the old and used car is not working properly then as per usage of trade, the customer may raise quality claim of non-working parts or features of the car (old and used) as promised. To ensure such compliance the applicant is required to undertake the refurbishment cost along with the car procured by it. Hence without same the sale may be treated as invalid in accordance with the provisions of the Sales of Goods Act 1930. 51. That on the basis of above the applicant is of the understanding that cost of refurbishment is includible in the purchase price for calculation of margin as specified under explanation (ii) to Notification No 8/2018-CT (Rate) dated 25-01-2018. B. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT 1. Whether the amount paid to the owner of the car and amount incurred for the refurbishment of the said car are includible in the purchase price so as to deduct the same from the selling price of the old a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n column (2), from so much tax as specified in Schedule IV of Notification No. 1/2017-Central Tax (Rate), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4), of the said Table, on the value that represent margin of the supplier, on supply of such goods. S.No. Chapter, Heading, Subheading or Tariff item Description of Goods Rate (1) (2) (3) (4) 1. 8703 Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more. Explanation . - For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there- under. 9% 2. 8703 Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (ii) undoubtedly/clearly used the word purchase price not the purchase cost of goods. It means only the amount paid by the applicant at the time of purchase of used cars can be considered as purchase price there is no provision in the said notification to include the cost of refurbishment in the purchase price. Therefore, we find that there is no reason to include cost of refurbishment in the purchase price for calculation of margin. 5. Further, it is settled jurisprudence principle that when the words of a statute are clear, plain and unambiguous, i.e. they are reasonable susceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of consequences. Moreover, if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense . 6. The applicant has cited various case laws references viz. M/s. Maheshwari Fish Seed Farm. Sri Chamundeswari Sugar Ltd., M/s. Sai service station Ltd., etc is not tenable as the facts are quite different from the present application. 7. In view of the foregoing, we rule as follows: - RULING Q. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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