GST ON SECOND HAND CARS

Adv. Sanjay Dwivedi

GST is payable on ‘supply’ of goods or services or both. It is immaterial that

the goods are second hand. But ……..every sale is not supply.

Rate of GST on used goods, is the same as that on new goods. Motor Vehicles
attract very high rate of GST (ranging from 29% to 43% depending upon type
& size of the vehicle). Moreover, Input Tax Credit is not available on Motor
Vehicles.

Suppose you had purchased a car, used it for a few years and then want to
sell it. Are you required to pay GST? The first thought that may come to your
mind is – nobody is required to get registered under GST if his turnover does
not exceed Rs. 20 lakh. So in general, the question would not be relevant for a
salaried person who is not engaged in any business. But there could be
following three situations where this logic may not suffice.

a. The used car is sold by an individual salaried person: Let’s

assume that the selling price of the second hand car exceeds Rs. 20
lakh (in fact he has to take into account supply of all goods and
services – not only the used car. Here we are taking an extreme
example where he did not make any other supply). The government
has clarified that GST is not payable in this case because the supply of
car is not in the course of business.

b. The car was part of the asset of a business registered under

GST: Transfer of business asset is a ‘supply’. Any transfer of title in
goods is also a supply1. Therefore GST would be payable. Even where
the car is in the name of the proprietor, GST would be payable if it was
a ‘business asset’. The car would be a business asset if depreciation
was claimed as a business expense. GST is payable if the car is
transferred. Sale is not necessary. GST is payable even if the car is
disposed without any consideration.

c. Where the car is sold by a dealer of used cars: The government has
provided a scheme called ‘margin scheme’ to the dealers of second hand
goods (any goods, not necessarily cars). While other persons have to

1
Ref. entries 1 (a) and 4 (a) in Schedule II to the CGST Act, 2017.
 pay tax on the selling price of the used goods, the dealers have an
option to pay tax on the margin i.e. on the difference between the
selling price and the purchase price.

As could be seen the person in category (b) above is in a disadvantageous

position. While the dealer of used car is required to pay tax only on the
margin, the ordinary businessman has to pay GST on the full sale price.
Thus, for the person in category (b):
 GST is payable on supply of 2nd hand car, if the car was part of
‘business asset’
 GST is payable even if the supply is without any consideration (i.e.
free)
 GST is payable at on the full selling price. The margin scheme is not
available to him.
 In general, ITC is not available to the buyer of Motor Vehicles.

Thus, if a car is sold thrice, the total amount of tax may equal the price of a
new car. This is anomalous and needs to be corrected. Government should
allow the margin scheme to every person irrespective of whether he is dealing
in buying and selling of used goods or not.