Challenging Case Studies.
In this article, we shall cover the below mentioned points:
1 Rate of GST on leasing of Old/Used Vehicles - Notification No. 37/2017 - Central Tax (Rate)
1.1 Notification No. 37/2017 - Central Tax (Rate) dated 13th October, 2017 provides the
much awaited abatement of 35% to the lesser who is into the business of leasing of motor vehicles. In other words, GST will be levied on 65% of the applicable GST Rate on such Motor Vehicles. The benefit of this notification shall available till 1st July, 2020 subject to fulfilment of below mentioned conditions:
The Motor Vehicles was purchased by lessor prior to 1st July, 2017 and supplied on lease before 1st July, 2017.
i. The supplier of Motor Vehicle is a registered person.
ii. Such Supplier had purchased the Motor Vehicle prior to 1st July, 2017 and has not availed input tax credit of Central Excise Duty, Value Added Tax or any other taxes paid on such vehicles.
1.2 The above-mentioned Condition No. 1 is relevant to those who are in to the business of leasing of the Motor Vehicles. However, the second condition is applicable to all registered persons. It may be noted that the condition for non-availment of input tax credit is applicable to the dealers covered by condition no. 2 and not to the dealer covered by condition no. 1.
1.3 It may be noted that the leasing companies who have purchased the motor vehicle prior to 1st July, 2017 and supplied such vehicles on lease before 1st July 2017 and availed Input Tax Credit under VAT at the time of purchase of such vehicle will be liable to pay GST at the rate of 65% of the applicable GST Rate. Even though Input Tax Credit has been claimed under VAT on such Vehicles.
1.4 Gist of above-mentioned notification with regards to “lessors”:
1.5 Gist of above-mentioned notification with regards to “other than Lessor”:
In general the above table would be applicable to registered dealers like traders, manufacturers, etc. who sell Motor Vehicles used in their business which have been purchased in Pre GST Regime but sold during the GST Regime.
Such Persons can also be covered by Notification No. 08/2018-Central Tax (Rate) dated 25th January 2018.
2 Reduction in GST Rate for sale of Old / Used Motor Vehicles - Notification No. 8/2018 - Central Tax (Rate)
2.1 Major relief given by the government to the supplier of old / used Motor Vehicles through Notification No. 8/2018 - Central Tax (Rate) dated 25th January 2018. After the Implementation of GST Law, Old / Used Motor Vehicles were to be taxed at the same percentage of GST as applicable to New Motor Vehicle i.e. 28% plus Cess as applicable as discussed above in this Article. To make old/used Motor Vehicle more affordable, on recommendation of GST Council, Government has issued Notification No. 8/2018 – Central Tax (Rate) dated 25th January 2018. Apart from that, Government also issued notification to exempt cess on sale of old/used Motor Vehicles i.e. Notification No. 1/2018 – Compensation Cess (Rate).
The above said notifications are in effect from 25th January 2018.
2.2 Gist of the GST Rates on sale of Old/Used Motor Vehicles as per Notification No. 8/2018 – Central Tax (Rate).
2.3 Now the question will arise about valuation i.e. What shall be the value on which GST shall be applicable. Notification No. 8/2018 – Central Tax (Rate) also provides the mechanism on which value GST shall be levied. In such cases, Value of Supply shall be the “Margin of Supply” on which GST shall be calculated in the manner prescribed in the said notification as mentioned below:
1. If Depreciation Claimed u/s 32 of Income Tax Act 1961:- Where the depreciation has been claimed under section 32 of Income Tax Act 1961 on the said goods, Margin of Supply shall be difference between Sale consideration received for supply of such goods and depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored.
2. In Other Case:- Margin of Supply shall be the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored.
2.4 This Notification shall not apply, if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act, 2017, CENVAT as defined in CENVAT Credit Rules, 2004 or the input tax credit of Value Added Tax or any other taxes paid, on such goods.
2.5 On the analysis of the said notification, it can be observed that there is no condition about the Date of Purchase of Motor Vehicle which is being sold as Old / Used Motor Vehicles.
2.6 Implication of the above-mentioned Notification No. 8/2018 – Central Tax (Rate) can be summarised as under:
3. Person Dealing In Buying And Selling Of Second Hand Goods:
3.1 Rule 32 of CGST Rule 2017, states about the Determination of Value in respect of certain supplies. As per sub rule 5 of the said rule, 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 such 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.
3.2 Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.
3.3 This rule shall be applicable to those who deal in buying and selling of second hand goods. Hence, this shall be equally applicable to dealers in the business of buying and selling of Second Hand Motor Vehicles.
In case of sale of Used Motor Vehicles (Other than the dealer dealing in buying and selling of second-hand Motor Vehicles), Abatement of 35% is provided with effect from 13th October 2017 as per Notification No. 37/2017-Central Tax (Rate) on the Rate of tax applicable to New Motor Vehicle. For eg. If Rate of Tax is 28% and cess Rate is 15%, then total tax shall be 43% and if the same is applied @ 65% , then effective rate of tax becomes 28% (approx.).
It is to be noted that as per Notification No. 8/2018 – Central Tax (Rate), the Rate of Tax shall be 12% or 18% as applicable. In such cases, Cess is also exempted as per Notification 1/2018 – Compensation Cess (Rate). Apart from that such rate shall be applicable on Margin of Supply subject to fulfilment of conditions.
It is to be noted that Rule 35(5) shall be restricted to those who deal in buying and selling of second-hand Motor Vehicles being Goods. Rate of tax shall be as applicable to New Motor Vehicle. In such case, Taxable Value shall be the difference between the selling price and the purchase Price and where the value of supply is negative, it shall be ignored.
In case of Motor Vehicles purchased in Pre GST-regime say in April 2017, which is sold as used vehicle in September 2018. The rate of tax payable under GST will be as per Notification 8/2018 – Central Tax (Rate) provided such person has not availed Input Tax Credit on such Motor Vehicles under the erstwhile law.
Thus, Notification 8/2018-Central Tax (Rate) seems to be more beneficial as compared to Notification 37/2017 – Central Tax (Rate). However, one has to note that Notification No. 8/2018 – Central Tax (Rate) shall be applicable from 25th January 2018.
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