GST on Used Goods and Cars — Explained

This document covers

1. Meaning of Second-hand goods under GST
2. Valuation of Second-hand goods under GST
3. Applicability of GST on second-hand goods purchased / sold from different persons
4. Conditions for attracting the provisions of Margin Scheme
5. GST on Old and used Motor vehicles (Cars, bikes etc)

1. Meaning of Second-hand goods under GST

• GST Act has not defined the word Second-hand goods
• As per GST Act, Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of land which are agreed to be severed before supply or under a contract
• As the above definition does not exclude second hand goods, GST is also levied on sale of second hand goods similar to new goods

2. Valuation of Second-hand goods under GST

• Generally, GST is charged on the transaction (Taxable) value of goods or services or both.
• But in respect of second-hand goods, the taxpayer is allowed to pay GST on Margin. This is called Margin Scheme.
• The purpose of margin schemes is to avoid double taxation as the second- hand goods have already borne the incidence of tax in the initial (original sale)
• The taxpayers are required to pay GST on difference between the Selling price and Purchase price on sale of second hand goods. This is applicable only if the taxpayer has not availed ITC.

When ITC is not availed ?

If the taxpayer has availed ITC, normal GST provisions will be applicable

3. Applicability of GST on second-hand goods purchased / sold from different persons

The suppliers or customer can be either registered or unregistered when dealing in second hand goods. The taxability differs based on the customer and supplier

• Registered Supplier — and — Registered Customer (Consumer):
  Here as the supplier and customer both are registered, the supplier is required to collect GST and Pay to the Government either based on Margin scheme or normal provisions.
• Registered Supplier — and — Unregistered Customer (Consumer):
  The supplier is required to collect GST and Pay to the Government either based on Margin scheme or normal provisions.
• Unregistered Supplier — and — Registered Customer (Consumer):
  As the supplier is unregistered, GST is not required to be paid, and this transaction is exempted from GST. Reverse charge is also not applicable.
• Unregistered Supplier — and — Unregistered Customer (Consumer):
  No GST applicable on this transaction.

4. Conditions for attracting the provisions of Margin Scheme

The second hand dealer need to follow the below conditions to avail Margin Scheme

• The supplier should deal in second hand goods only
• The goods should be used before.
• The person should be dealing in both buying and selling of second hand good. Just 1 or 2 unwanted second hand goods sale cannot be treated as dealing in second hand goods
• The dealer can carry minor processing like repairs, refurbishing, re-boxing etc.
• Nature of goods should not change.
   NOTE

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If different accessories and goods are brought and assembled into a new product, it will not be considered as second hand sale.

• Input Tax credit should not be claimed on any purchases to claim benefit under Margin Scheme

5. GST on Old and used Motor vehicles (Cars, bikes etc)

The GST rates on used cars depends on various factors like size and engine capacity. The GST rates can be 12%, 18 or 28% depending on various factors. The valuation of motor vehicles is as follows

1. Registered person who has claimed depreciation under Income tax Act
   
   Taxable Value = consideration received – depreciated value on the date of supply
   NOTE

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If consideration received is less than depreciated value on the date of supply, GST is not applicable.

2. Other Cases
   
   Taxable value = Selling price – Purchase price
   NOTE

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If selling price is less than purchase price, GST is not applicable.