Margin Scheme in GST: Normally GST is charged on the deal worth of the items. In respect of 2nd hand products, an individual dealing is such products may be allowed to pay tax on the margin i.e. the difference between the value at which the products are supplied and the cost at which the items are purchased. If there is no margin, no GST is charged for such supply. The purpose of the plan is to prevent double tax as the items, having as soon as borne the incidence of tax, re-enter the supply and the economic supply chain.
Margin Scheme in GST
Valuation of Second Hand Goods:
As per Rule 32( 5) of the CGST Rules, 2017, where a taxable supply is supplied by an individual dealing in buying and selling of previously owned items i.e., utilized goods as such or after such minor processing which does not alter 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 distinction between the selling price and the purchase cost and where the value of such supply is unfavorable, it shall be disregarded.
The proviso to the above guideline further provides that in case of the purchase worth of products repossessed from a unregistered defaulting debtor, for the purpose of healing of a loan or financial obligation will be considered to be the purchase cost of such products by the defaulting borrower lowered by five percentage points for every quarter or part thereof, in between the date of purchase and the date of disposal by the individual making such foreclosure.
In this regard, Notification No.10/2017- Central Tax (Rate) New Delhi, dated 28 th June, 2017 excuses intra-State products of previously owned goods received by a registered individual, handling trading of pre-owned goods and who pays the main tax on the value of external supply of such previously owned goods as determined under sub-rule (5) of guideline 32 of the CGST Rules, 2017, from any unregistered provider, from the whole of the central tax levied under the CGST Act,2017 Comparable exemptions are likewise there in respective SGST Acts.
Illustration:
For circumstances, a business state M/s FirstSource Ltd, which deals in trading of second hand automobiles, purchases a previously owned Maruti Celerio Car of March, 2014 make (Original cost Rs. 5 lakhs) for Rs. 3 lakhs from an unregistered person and offers the very same after minor furbishing in July, 2017 for Rs. 3,50,000/-. The supply of the car to the business for Rs. 3 lakhs will be excused and the supply of the very same by the company to its consumer for Rs. 3.5 lakhs will be taxed and GST will be imposed. The value for GST purpose will be Rs. 50000/-, i.e.the distinction between the selling and the purchase price of the business.
In case any other worth is included by method of repair work, refurbishing, reconditioning etc., the exact same will likewise be contributed to the value of goods and be part of the margin.
If margin scheme is gone with a transaction of pre-owned goods, the individual selling the automobile to the business will not issue any taxable billing and the company purchasing the car will not claim any ITC.
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