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TMI BlogITC on second havd vehicle purchaseX X X X Extracts X X X X X X X X Extracts X X X X ..... Dear Sirs, A scrap dealer has purchased a second-hand vehicle, rebuilt and hired. It is used to supply food articles, vegetables, milk and other daily consumables. Is he eligible for ITC on the purchase of the second-hand vehicle or blocked u/s 17 ? - Reply By Sadanand Bulbule - The Reply = Dear Murthy Is such motor vehicle purchased as scrap? or a usable motor vehicle? If it is purchased as scrap, then it loses the road worthy qualities of a motor vehicle and cannot be termed as such. However Section 17[5][a] prohibits ITC on a motor vehicle having approved seating capacity of not more than thirteen persons including driver for transportation purpose. Admittedly the subject motor vehicle is being used for transportation of daily needs, may be as street vendor. Now make the query more clear. - Reply By KALLESHAMURTHY MURTHY - The Reply = Respected Sir, Most probably, he purchased it as scrap but rebuilt it to use in transport daily needs in street vending. - Reply By Sadanand Bulbule - The Reply = Dear Murthy Under the situation made out by you , I opine that he is not entitled for ITC. - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear Sir, Thanks very much for the clarification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... My opinion is also the same. But someone told that ITC is eligible since it is purchased as scrap. - Reply By k.lakshmipati rao - The Reply = Assuming the said vehicle purchase is from a Registered person, for which, the GST would have suffered @ 18% as per Notification No. 8/2018 -Central Tax (Rate) New Delhi, the 25th of January 2018 i.e., IGST 18% or (SGST 9%+ CGST 9%). Yet again, the said vehicle was rebuilt and hired ,[rebuilt it to use in transport daily needs in street vending] therefore, appear to be Roadworthy and qualities of a Motor vehicle permitted to use on Road, and hence, no longer remains as Scrap. As per provisions of Notification No. 08/2018- Central Tax (Rate), dated 25-01-2018 , which provides applicable tax rate on second hand goods, restricts the eligibility of ITC on direct and indirect expenses incurred in the business of selling second-hand Vehicles. Thus, the embedded value of GST element (if any) in the refurbishment expenditure is not eligible for ITC set-off. However, at the time of re-sale of vehicle , the Value of supply of such second-hand goods for the purpose of GST liability would be the difference between the selling price and the purchase pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, i.e., GST payable on the actual Margin earned, as per Valuation under GST Rule 32(5) of CGST Rules 2017 . - Reply By Sadanand Bulbule - The Reply = Dear Roa Sir The querist has indirectly admitted that the subject vehicle is purchased as scrap . As such even if it is refurbished, it remains as refurbished scrap only. The question of applying the subject Notification comes into play had it been sold as motor vehicle certified as roadworthy. Otherwise scrap continues as reusable scrap with different utility. The RTO does not consider it as motor vehicle on the count of cancellation its registration number once it is certified as scrap. So this is my perception. - Reply By k.lakshmipati rao - The Reply = Dear Mr. Sadanand Bulbule ji, In case the RTO does not consider it as motor vehicle on the count of cancellation its registration number , then, the Vehicle is not authorized to put to use on Road in transport for daily needs in street vending. - Reply By Sadanand Bulbule - The Reply = Dear Sir It is the chosen risk of the user and he has to face music accordingly. - Reply By KALLESHAMURTHY MURTHY - The Reply = Respected Sadanand Bulbule Sir, Exactly. Other Laws come into play. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards - Reply By k.lakshmipati rao - The Reply = Noted. If the user is chosen risk for unauthorized operations for his own sake, for which, Other Laws would come into play, I feel such query should not have referred to TMI (common) forum, since TMI Members are interested to share opinions on GST Law related matters for the best interest of all. - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear Expert k.lakshmipati rao Sir, The question is whether the second-hand purchase of a vehicle as scrap is eligible to avail of ITC. This is GST related matter. Other Laws come into play that cannot be ignored. Purchase of second-hand vehicle and making it used other way is advisory to the buyer and user in this Forum. Expecting more opinion from you. Thanking you Sir. - Reply By KASTURI SETHI - The Reply = Dear All, When we talk of the term, 'scrap', the term, 'second hand vehicle' is out of picture. Notification No. 8/2018-CT (R) dated 25.01.18 does not come into play. Classification of both goods is different. Both goods fall under different headings of HSN.. Both have different functions and end-uses. I concur with the views of Sh. Sadanand Bulbule, Sir Ji. 100 % accurate. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reply By k.lakshmipati rao - The Reply = Query -The question is whether the second-hand purchase of a vehicle as scrap is eligible to avail of ITC. Ans.- If the Buyer/Recipient is Registered Dealer, dealing in purchase and sale of Scrap Materials , in my view, the Buyer is eligible to claim ITC in respect of GST element in the Tax Invoice with HSN Code 7204 [attract 9% SGST + 9% CGST vide Sl. No. 199 of Schedule III of Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017 ] for the unusable vehicle scrap [fully damaged or total LOSS vehicle unauthorized to use as Vehicle] sold by sellers like Insurance Companies or Automobile dealers or Tax Invoice issued by Registered Owner of the Vehicle or other Registered Supplier etc., - Reply By KASTURI SETHI - The Reply = It is humbly and respectfully expressed that the querist has not drafted the query properly and completely at the first instance. He should have drafted the query like this, Whether ITC is available on GST paid on manufacturing services and non-manufacturing services ? If the query is incomplete and improper, perfect reply cannot be expected. If the scenario is changed, the reply will be changed accordingly. - Reply B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y k.lakshmipati rao - The Reply = Dear Mr. KASTURI SETHI ji, True. Hope my reply is correct. - Reply By KASTURI SETHI - The Reply = Sh. K.Lakshmipati Rao Ji, I have not said so, especially, in the absence of full facts. Full facts are still not known to us. Hence we are groping on the surface. - Reply By KASTURI SETHI - The Reply = Extract of C.B.E. C. Flyer No. 30, dated 1-1-2018 In case any other value is added byway 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. - Reply By k.lakshmipati rao - The Reply = Dear Mr. KASTURI SETHI ji, I do agree that the querist has not drafted the query properly and completely at the first instance. However, I draw your attention to querist clarification at S.No.11 above. The purpose for which the query raised, of which I understood is that, about the entitlement for claim of ITC on the Inward supplies , in below two scenarios. Purchase of a vehicle as scrap and continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be used in same form [scrap] for furtherance of business, Purchase of second-hand vehicle as scrap and making it used other way. Reply: For scenario 1 above, If the Buyer/Recipient is Registered Dealer, dealing in purchase and sale of Scrap Materials , in my view, the Buyer is eligible to claim ITC . For scenario 2 above,If the Buyer/Recipient is Registered Dealer, dealing in purchase and sale of Used Vehicles / second-hand vehicles , and, using the Goods in the form of Vehicle [having Registration certificate issued by RTA] for furtherance of business to deploy for making it used to supply food articles, vegetables, milk and other daily consumables etc., in my view, the Buyer is not eligible for ITC set-off , as per the provisions of Notification No. 08/2018- Central Tax (Rate), dated 25-01-2018 . If the vehicle is not authorized by RTA to deploy on the Road- No comments to offer. I request for your comments please. - Reply By Sadanand Bulbule - The Reply = Dear Rao Sir Looking at the intrinsic intent of the query, I posted my reply at beginning only which you have now validated it in your last post. Its good some precious points are recovered out of scrap . Nothing is waste th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese days. - Reply By KASTURI SETHI - The Reply = Dear Sirs, (i) As per legal dictionary meaning of 'scrap' it means something which cannot be used for the same purpose for which it was being earlier used even after repairing or renovating the same. In commercial parlance 'scrap' is normally understood as waste. (ii) So either we should talk of 'scrap' or we should talk of second hand vehicle (old used). Both will not click. (ii) Refurbishing, reconditions, repairs etc. are services but these are non-manufacturing services. These services are to be supplied on goods (whether damaged or old and used or worn-out.) and cannot be supplied on 'scrapped' goods. - Reply By k.lakshmipati rao - The Reply = Dear Mr. KASTURI SETHI ji, Agreed with the given dictionary meaning. May I request you to elaborate further, since the clarification sought by the querist is about the entitlement for claim of ITC on the Inward supplies of Scrap. - Reply By KASTURI SETHI - The Reply = Dear Sir, The initial query is about admissibility of ITC on 'second hand vehicle' and not about inward supply of scrap. Is he eligible for ITC on the purchase of the second-hand vehicl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or blocked u/s 17 ? Pl. do not intermingle 'scrapped material' with 'second hand vehicle'. - Reply By k.lakshmipati rao - The Reply = Dear Mr. KASTURI SETHI ji, Finally, what is your opinion on the subject query for the best interest of readers - Is he eligible for ITC on the purchase of the second-hand vehicle or blocked u/s 17 ? - Reply By KALLESHAMURTHY MURTHY - The Reply = Dear all learned experts, A scrap dealer had purchased a second-hand vehicle. The seller sold to a scrap dealer means logically understanding that it was sold as scrap. (This is my assumption). Scrap is a taxable goods so the ITC question arises only when the tax invoice is raised. As such there must be a tax invoice issued by a registered person. This is another logic. The vehicle was refurbished and used in the course of furtherance of business in a different form but not sold as scrap. The discussions between the learned experts on the issue have taken different aspects and angles and some consequential laws come in the way. Here the HSN also plays its role. From the points of the discussions of all the learned experts, I came to understand that the refurbished vehicle is not eligible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avail of ITC since its use is unlawful and blocked u/s 17(5) . The purchase of scrap is not used in the furtherance of business and hence not eligible to avail of the ITC as it serves as the end use due to the effect of HSN. This is my personal opinion. Any more points for discussion are let to the experts. With respects - Reply By KASTURI SETHI - The Reply = Sh. K .Lakshmipati Rao Ji, Inference can be drawn on the basis of the contents available in the above interaction. - Reply By Sadanand Bulbule - The Reply = Dear all Repeated efforts can not separate salt from sea. So also certain truths are inherent and need to be accepted as they are. Too much dissection may destroy the whole thing. This is not in the context of any query. - Reply By KASTURI SETHI - The Reply = Sh.Sadanand Bulbule Ji, Sir, I am highly thankful to you for your sincere advice and it should become an integral part of our life style. Repeat value is zero here. Repetition does not yield any result. - Reply By VENU K - The Reply = From the question what I understand is 1. A scrap dealer 2. Purchase of a second hand vehicle 3. Repairs and gives it on rent to third parties. 1.A scrap dealer buying a vehicle does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipso fact make it scrap even if the vehicle is second hand. It is assumed that inward supply is not billed as scrap when we look at HSN code. 2. Assuming input tax was paid he is perfectly eligible to to claim credit if it is a goods transport vehicle and is used in his business by giving it on hire. From the query I understand so. 3.If he is letting it out on hire and charges tax on hire charges , he can claim ITC even if it is a motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons. If the HSN says that the inward supply is a vehicle , then the only way ITC can be denied is by showing that it is hit by provisions of 17(5)(a) in my opinion. Enquiring into road worthiness, fitness etc is beyond the mandate of GST officer as long as the inward supply is a vehicle as per HSN - Reply By Amit Agrawal - The Reply = IMHO, query is not drafted properly and result of its that TMI contributors left to assume / presume so many things (either knowingly or even unknowingly) while sharing their views. Having said that and while broadly agreeing with Shri VENU K Ji for his views at post No. 28 above, I wish to say the followings: A. If w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is purchased is a 'second hand motor vehicle' and NOT 'scrap', then, Section 17(5)(a) may come into play and availability of ITC will be dependent on other relevant factors ( i.e. nature of vehicle - Goods Transport Carriage or Passenger Vehicle, If its Passenger Vehicle then what is capacity of such vehicle, usage of such vehicle etc. ). B. If what is purchased is NOT a 'second hand motor vehicle' but 'scrap', then, Section 17(5)(a) will not come into play at all and ITC can be availed by the tax-payer (i.e. scrap dealer) as long as such 'scrap' is used in course of or furtherance of his business. C. For views given in Para 'B' above, same are with the presumption that nature of goods ( 'scrap' instead of 'second hand motor vehicle' ) is NOT changed to circumvent blockage of ITC u/s 17(5)(a) at end of purchaser ( or / and , for avoiding additional tax-liability from point of seller) and the tax-payer can prove the same based on 'evidences' showing f actual position of goods purchased was indeed 'scrap' and not 'second hand motor vehicle' as on date of purchase. These are ex facie views of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine and the same should not be construed as professional advice / suggestion or recommendation. - Reply By Amit Agrawal - The Reply = Please read first line of my post above as follows: IMHO, query is not drafted properly and here, TMI contributors left to assume / presume so many things ( either knowingly or even unknowingly ) while sharing their views. - Reply By k.lakshmipati rao - The Reply = Dear Mr. KALLESHAMURTHY MURTHY Since the query is not drafted properly, TMI contributors left to assume / presume so many things ( either knowingly or even unknowingly ), therefore, request you to kindly check for the factual of transaction with your Scrap dealer, and resend the query so as to minimize our correspondence in the matter. - Reply By KASTURI SETHI - The Reply = Now all the facts are available at serial no.24 above. Sh.Kalleshamurthy Murthy Ji has already worked hard to make the query crystal clear. He did not remain dormant. T he query was not clear only at the first instance. - Reply By Sadanand Bulbule - The Reply = Dear all One query, many perceptions . Thought-provoking discussion. - ITC on second havd vehicle purchase - Query Started By: - KALLESHAMURTHY MURTHY Dated:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24-9-2024 Last Replied Date:- 1-10-2024 Goods and Services Tax - GST - Got 33 Replies - GST - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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