Refurbishment Cost is not Includible in Purchase Price for Payment of Tax Under Margin SchemePrayag Narain

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers GST--Margin Scheme Refurbishment Cost is not Includible in Purchase Price for Payment of Tax Under Margin Scheme Prayag Narain Under the margin scheme, GST is payable on the margin of the buyer i.e. sale price minus purchase price. The learned author tries to make an overview of the issue as to whether cost incurred for refurbishment of vehicles is includible in the purchase price for payment of tax under margin scheme. The related issued is being discussed in the light of a relevant Notification and a recent AAR Ruling in the case of Tej Jain, In re. 1. What is margin scheme? The Central Goods and Services Tax Rules, 2017 (in short "the CGST Rules") contains special provisions for determination of taxable value for taxpayers dealing in buying and selling of second-hand goods, i.e. used goods as such. As per sub-rule (5) of rule 32 of the CGST Rules, 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 of on purchase of such goods, the value of supply shall be the difference between the selling price and purchase price and where the value of such supply is negative, it shall be ignored. This is known as the 'margin scheme'. The essential conditions of the margin scheme are as under: (i) Taxable supply is made by a person dealing in buying and selling of second-hand/old/used goods; (ii) The used goods so purchased are supplied as such or after such minor processing which does not change the nature of the goods; (iii) No input tax credit has been availed of by the seller on purchase of such goods. If any of the above conditions is not satisfied, the value of supply shall be determined as per the normal provisions. The impact of margin scheme may be illustrated with the following illustrations: SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Margin Scheme

Refurbishment Cost is not Includible in Purchase Price for Payment of Tax Under Margin Scheme

Prayag Narain

Under the margin scheme, GST is payable on the margin of the buyer i.e. sale price minus purchase price. The learned author tries to make an overview of the issue as to whether cost incurred for refurbishment of vehicles is includible in the purchase price for payment of tax under margin scheme. The related issued is being discussed in the light of a relevant Notification and a recent AAR Ruling in the case of Tej Jain, In re.

1. What is margin scheme?

The Central Goods and Services Tax Rules, 2017 (in short "the CGST Rules") contains special provisions for determination of taxable value for taxpayers dealing in buying and selling of second-hand goods, i.e. used goods as such.

As per sub-rule (5) of rule 32 of the CGST Rules, 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 of on purchase of such goods, the value of supply shall be the difference between the selling price and purchase price and where the value of such supply is negative, it shall be ignored. This is known as the 'margin scheme'.

The essential conditions of the margin scheme are as under:

(i) Taxable supply is made by a person dealing in buying and selling of second-hand/old/used goods;

(ii) The used goods so purchased are supplied as such or after such minor processing which does not change the nature of the goods;

(iii) No input tax credit has been availed of by the seller on purchase of such goods.

If any of the above conditions is not satisfied, the value of supply shall be determined as per the normal provisions.

The impact of margin scheme may be illustrated with the following illustrations: