GST on Purchase and Sale of second hand used goods – Margin Scheme
In Goods and Service Tax (GST) regime, selling the second hand or old used things brings some new concepts. Normally, GST is charged on Transaction value of Goods, which is nothing but the price actually paid or payable for the goods when following two conditions are satisfied.
- The Supplier and the Recipient of supply are not related; and
- Price is the sole consideration for supply.
However, a person dealing in second hand goods are allowed to pay tax on the basis of Margin Scheme i.e. the difference between the Purchase price and Sales price. If there is no margin, no GST is charged for such supply. Following table shows some example of chargeability of GST on second hand goods-
|Selling Price (SP)||Purchase price (PP)||Margin (SP-PP)||GST|
The main purpose to bring Margin scheme is to avoid double taxation as the goods re-enter in the supply chain. However, to avail margin scheme, following two conditions are necessary-
- No Input tax credit (ITC) availed at the time of Purchase, and
- if goods are sold after minor processing then there should not be any change in nature of goods.
For example, if input tax has been paid at the time of purchase and its credit was used against Output tax at that time, then GST would be charged as per normal provision at the time of sale i.e. Transaction value and not under margin scheme.
In case, Margin scheme is opted for transaction of second hand goods, the person selling the goods shall not issue any Tax invoice whereas the person purchasing the goods shall not be able to claim any ITC.
Exemption for Second hand goods dealer
Where second hand goods are supplied by an unregistered supplier to registered second hand goods dealer within the same state, then no GST would be applicable as it has been exempted by notification no. 10/2017 dated 28/06/2017.
For example, A company X Ltd is a dealer of second hand cars, purchases a second hand car for Rs. 3 lakhs (Original price Rs. 5 lakhs) from an unregistered person and sells the same after minor repairs for Rs. 3.5 Lakhs. Here, supply of car to the company for Rs. 3 lakhs shall be exempted.
However, supply of same car by company to the customer for Rs. 3.5 lakhs shall be taxable. The value for tax purpose shall be Rs. 50,000 (Rs. 3,50,000 – Rs. 3,00,000) i.e. difference between selling price and purchase price.
Purchase value of used goods in Special circumstance
Many a times goods are taken on loan and in event of default in repayment of loan, goods are being repossessed by the lender. In such cases the purchase value of such goods shall be determined as –
- If Defaulting borrower is an Unregistered person–
Here, purchase value shall be the purchase price in hands of such borrower as reduced by 5% for every quarter or part of it, between the date of purchase and date of disposal by person making such repossession.
- If Defaulting borrower is a Registered person –
Here, purchase value shall be the supply value without any reduction from actual or notional purchase value.
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The author of the above article is CA Rahul Gaur.
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