Normally
GST is charged on the transaction value of the goods. However, in respect of
second hand goods, a person dealing is such goods may be allowed to pay tax on
the margin i.e. the difference between the value at which the goods are
supplied and the price at which the goods are purchased. If there is no margin,
no GST is charged for such supply. The purpose of the scheme is to avoid double
taxation as the goods, having once borne the incidence of tax, re-enter the
supply and the economic supply chain.
Valuation of second hand goods: As per
Rule 32(5) of the CGST Rules, 2017, 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.
Illustration:
For
instance, a company say M/s FirstSource Ltd, which deals in buying and selling
of second hand cars, purchases a second hand Maruti Celerio Car of March, 2014
make (Original price Rs. 5 lakhs) for Rs. 3 lakhs from an unregistered person
and sells the same after minor furbishing in July, 2017 for Rs. 3,50,000/-. The
supply of the car to the company for Rs. 3 lakhs shall be exempted and the
supply of the same by the company to its customer for Rs. 3.5 lakhs shall be
taxed and GST shall be levied. The value for GST purpose shall be Rs. 50000/-,
i.e.the difference between the selling and the purchase price of the company.
In case
any other value is added by way 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.
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