CHAPTER XXIX

Margin Scheme in GST

Normally GST is charged on the transaction value of the goods. However, in
respect of second hand goods, a person dealing is such goods may be allowed
to pay tax on the margin i.e. the difference between the value at which the
goods are supplied and the price at which the goods are purchased. If there
is no margin, no GST is charged for such supply. The purpose of the scheme
is to avoid double taxation as the goods, having once borne the incidence
of tax, re-enter the supply and the economic supply chain.

Valuation of Second Hand Goods

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 an 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.

Illustration

For instance, a company say M/s First Source Ltd, which deals in buying and
selling of second hand cars, purchases a second hand Maruti Celerio Car of
March, 2014 make (Original price Rs. 5 lakh) for Rs. 3 lakhs from an
unregistered person and sells the same after minor furbishing in July, 2017
for Rs. 3,50,000/-. The supply of the car to the company for Rs. 3 lakh
shall be exempted and the supply of the same by the company to its customer
for Rs. 3.5 lakh shall be taxed and GST shall be levied. The value for GST
purpose shall be Rs. 50000/-, i.e. the difference between the selling and
the purchase price of the company.

In case any other value is added by way of repair, refurbishing,
reconditioning etc., the same shall also be added to the value of goods and
be part of the margin.

If margin scheme is opted for a transaction of second hand goods, the
person selling the car to the company shall not issue any taxable invoice
and the company purchasing the car shall not claim any ITC.