GST on buy back of leased car

Hi Yogesh,

You're raising a valid and important query regarding GST on buyback of a leased car, particularly in a situation where:

• The car is leased via Tata Capital, but registered in your personal name (since your company has no Hyderabad office),

• There's a lease agreement between you and your employer (so your company gets tax benefits),

• Now, after 48 months, you're paying 15% residual value to buy back the car,

• Tata Capital is charging GST + Cess on this residual payment, even though ownership is already in your name.

Let’s break this down in terms of GST law and practical implications.

🔍 Key Facts:

• The car is registered in your name, not Tata Capital’s.

• However, Tata Capital holds hypothecation, meaning they financed the car.

• You're now paying the residual value (15% of ex-showroom price) to close the lease and remove hypothecation.

• Tata Capital is treating this as a "sale" and levying GST + Compensation Cess.

✅ What Does GST Law Say?

Under GST:

• Leasing of vehicles is considered a supply of service.

• At the end of the lease period, transfer of the asset (even under buyback) is considered a supply of goods if ownership changes.

But in your case, ownership never changed — the vehicle was always in your name.

🚫 Why GST May Not Be Applicable:

❗ If there is no change in legal ownership:

• You’re not “buying back” the car from Tata Capital — because you already own the vehicle.

• You’re only repaying a residual amount as per lease terms, and removing hypothecation.

💡 Removal of hypothecation is not a "supply" under GST — it is an administrative process.

So, unless Tata Capital owns the car, no sale is happening from their side. Thus, GST should not apply.

⚠️ Why Tata Capital Might Be Charging GST:

Even though you are the registered owner, the finance company (Tata Capital) may be treating themselves as the owner because:

• They had financed and held beneficial ownership for lease accounting purposes,

• The car was part of a financial lease structure (not operating lease),

• The lease contract possibly includes a transfer of title clause at the end, upon residual payment.

So, from Tata Capital’s books, this residual value payment may be treated as sale of asset, attracting GST + Cess.

📌 Clarification from GST Law / Advance Rulings:

Several Advance Rulings (e.g., in Karnataka & Maharashtra) have held:

"Buyback of vehicle at the end of lease period by lessee is treated as supply of goods, and taxable under GST."

BUT — these usually apply when:

• The car is owned by the lessor (finance company),

• And then transferred to lessee after buyback.

✅ Your Case Is Unique Because:

• Car is already registered in your name, not Tata’s.

• Tata Capital never had legal title in RTO records.

• You're merely paying the final due amount to clear off lease obligations.

👉 Hence, this is not a "sale" from Tata Capital to you under GST — and GST should not apply.

📄 What You Can Do:

1. Ask Tata Capital for a copy of the tax invoice they're issuing for this residual payment.

   • See if it's titled as a “sale of vehicle” or just a lease closure.

2. Write to Tata Capital formally:

   • State that you are the registered owner, and this is not a transfer of title.

   • Request justification under which they are levying GST + Cess.

   • Ask for GST provision or ruling they are relying upon.

3. If needed, file a written clarification request to the jurisdictional GST officer or approach Advance Ruling Authority for a ruling.

🧾 HSN Code and Rate (If GST is Actually Applicable):

If Tata Capital insists it is a supply of goods, then:

• HSN Code: 8703 (Motor Cars)

• GST Rate: 28% + applicable Compensation Cess (ranges from 1% to 15% depending on engine capacity and type)

But again — this applies only if there's a sale, which, in your case, is disputable.

✅ Summary: