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Impact of GST on Used car Business

CA Puspendra Jain 
on 18 February 2018

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In this period of reforming India, government has imposing major compliance and taxation on different industries and also on automobile Industry and the major impact of demonetization and GST implication makes it very much difficult for Used Car Industry to survive but there are several measures which government gives to resolve in used car Industry.

After GST, there were following issues and resolution which government gives or not gives

1. VALUATION OF USED CAR

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.

The proviso to the above rule further provides that in case of the purchase value of goods repossessed from a unregistered defaulting borrower, 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.

In this regard, Notification No.10/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of rule 32 of the CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.

Hence If Mr. Gauranga (Used Car Dealer) purchase Car from Mr. Nityanand (Who is owner of this car) at Rs.500000/- and after that Mr. Gauranga Sold this to Mr. Shrivas at Rs.700000/- than the Valuation of car for the payment of GST is Rs. 200000/- (700000-500000)


For Mr. Nityanand

For Mr. Gauranga

Valuation as per CGST

Exempt as per Notification No. 10/2017

As per Rule 32 (5) is of Rs. 200000/-

Input Tax Credit

Not eligible due to supply of exempt supply as per section 17(2).

Eligible to take credit of ITR

The Person who are purchasing from Mr. Gauranga is eligible to take input tax credit subject to restriction under section 17 (5)


2. GST RATES

Before the 25th general meeting of GST Council, there was not specified different rates for used car hence here the applicability of rates is as applicable on new car/vehicles. Similarly for Compensation Cess also there are not separate rates so this is also applicable as applied on new car.

But in this meeting Mr. Arun Jaitley, our honorable Finance minister considered the pain of this industry and reduce the rates and cess on car is as follows.


Rates

Cars (Types)

Condition

Reduce 28% to 18%

GST RATE

Old and used motor vehicles [medium and large cars and SUVs] on the margin of the supplier

No input tax credit of central excise duty/value added tax or GST paid on such vehicles has been availed by him.

Reduce 28% to 12%

GST RATE

All types of old and used motors vehicles [other than medium and large cars and SUVs] on the margin of the supplier.

No input tax credit of central excise duty /value added tax or GST paid on such vehicles has been availed by him.

To Nil Rate

COMPENSATION CESS

Old and used motor vehicles [medium and large cars and SUVs, on the margin of the supplier

No input tax credit of central excise duty /value added tax or GST paid on such vehicles has been availed by him.

To Nil Rate

COMPENSATION CESS

All types of old and used motors vehicles [other than medium and large cars and SUVs] on the margin of the

No input tax credit of central excise duty /value added tax or GST paid on such vehicles has been availed by him.


3. Turnover for Registration

Registration is require as per the Central Goods and Service tax 2017 in the different circumstances but for turnover case there is given section that is, 'As per section 22 of Central Goods and Service Tax Act 2017, Every Supplier shall be liable to register under this act if his aggregate turnover in a financial year exceed twenty lakhs rupees'. Here the first confusion arise in our mind is that what is the aggregate turnover for used Car Dealer taxable value or gross value (total consideration). So we have to read the definition of aggregate turnover 'As per section 2 (112) of Central Goods and Service Tax Act 2017, Aggregate turnover means the aggregate value of all taxable supplies and exempt supplies made within state or Union territory by a taxable person, exports of goods or service or both and inter-state supplies of goods or service of both from state or union territory by the said taxable person but excludes state tax, central tax. '

Here in our example total supply is of Rs. 500000/- hence For Mr. Gauranga Total Supply is of Rs. 500000/- and if value of total consideration exceeds Rs. 2000000/- than Mr, Gauranga as a proprietorship firm.

The author can also be reached at capuspendrajain@gmail.com


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