GST on buyback of leased car

Hi Yogesh,

Thanks for elaborating further — your case is nuanced, but we can clarify it by looking closely at how GST treats leasing, ownership, and buyback transactions.

✅ Core of Your Query:

You're asking:

Since the car is registered in your name, and you're only paying the residual value (15%) to remove hypothecation from Tata Capital, is it correct for Tata Capital to charge GST + Cess on this residual payment?

🔍 Key Points to Understand:

1. Who Is the Owner Under GST?

• In RTO records: The registered owner is you.

• Under finance lease agreements: The economic owner is usually the lessee (you), but in accounting and GST law, ownership is judged based on:

  • Substance over form, i.e., who holds control and rights during lease term.

  • Whether the lease transfers ownership at end.

So, even if the vehicle is in your name, Tata Capital may treat the lease as a supply of goods at residual value if the agreement includes ownership transfer upon final payment.

2. GST Law on Leased Vehicle Buyback:

As per GST rules and circulars:

• If a lessor (like Tata Capital) leases a car and transfers it to the lessee (you) at the end of the lease, the final transfer is considered a supply of goods.

• This is taxable under Section 7(1)(a) of CGST Act:

  "All forms of supply of goods or services, such as sale, transfer, barter, etc., made for a consideration in the course of business"

• Even if registered ownership is already in your name, if Tata Capital holds beneficial interest or retains hypothecation, the final payment is treated as consideration for transfer, attracting GST + Cess.

3. Relevant GST Circulars / Case References:

• Circular No. 34/8/2018-GST:
  Clarifies treatment of lease transactions and taxable value on supply of motor vehicles.

• Advance Ruling – M/s. BMW India Financial Services Pvt Ltd (Uttarakhand AAR):
  Held that transfer of vehicle at end of lease period for residual value is supply of goods and taxable.

✅ Is Tata Capital’s GST Charge Justified?

In Legal Terms:

✅ Yes, if:

• Tata Capital had beneficial ownership during lease,

• Lease agreement has residual value clause + ownership transfer intent,

• You're paying a price (15%) to acquire full rights and remove hypothecation.

Then the transaction is seen as a supply of goods under HSN 8703, attracting:

• GST @ 28%

• Plus Compensation Cess (depending on engine capacity and fuel type)

This treatment holds even if the car is registered in your name, because legal ownership ≠ tax ownership in such financing structures.

❌ When GST Would Not Apply:

If:

• You already own the car fully (not just in registration, but in beneficial/tax sense),

• Tata Capital has no right to transfer,

• The payment is purely for removal of hypothecation (like a charge release fee),

• No consideration is paid for asset transfer,

👉 then it's not a “supply”, and GST should not be levied.

But from your descripttion, it appears the 15% residual value is contractually structured as a final purchase price, making it liable for GST.

🧾 Summary of GST Applicability on Car Buyback:

✅ What You Can Do:

1. Review the Lease Agreement:

   • Does it mention transfer of ownership at end?

   • Is the 15% residual value clearly defined as purchase price?

2. Ask Tata Capital for GST Invoice:

   • They must raise a tax invoice if treating it as a sale.

   • Check HSN Code, tax rate, and value mentioned.

3. Consult with your company's tax advisor:

   • If company has availed input credit on lease rentals, Cess and GST on buyback may not be fully creditable.

4. If you believe this is not a sale, consider:

   • Writing to Tata Capital for legal clarification,

   • Filing a representation or even applying for Advance Ruling (optional, but costly/time-consuming).