GST on Purchase & Sale of Second Hand Goods Margin Scheme: There is definitely a requirement to defines the rules for the purchase and sale of second-hand goods. For example, a car is purchased by Mr. Khanna for Rs. 15 lakhs, and it comprises a GST amount of Rs.4.2 lakhs. Now, if he resells it after four years for Rs. 6 lakhs, then if GST is imposed on such Rs. 4.2 lakh, then it leads to double taxation.
Thus, the Margin scheme is made available by the government to handle such circumstances.
Margin scheme under GST benefits in avoiding double taxation on the supply of goods that already taxed. Under the Margin Scheme, the seller or the supplier of the goods can calculate the difference between the value of the purchase value of the goods received by the customer and supplied seller.
Typically, as per valuation rules, GST is imposed on the original transaction value of the supply of the goods. However, regarding second-hand goods, an individual dealing in such goods may be permitted to pay tax on the margin. If there is no margin, then on such a transaction, there will be no imposed payable GST. This is the base of the GST margin scheme.
The scheme’s main objective is to evade double taxation as the goods that once borne the incidence of tax usually re-enter India’s supply and economic supply chain.
Such a scheme is relevant only when there is minor processing or no change in the goods. Such a scheme can-not be applied if there is a variation in the nature of goods. GST applies to the whole amount only when there is a change in nature.
For example, a jeweller purchases a gold chain and then melts it to make a ring, then tax is imposed on the whole amount, not on the margin amount.
It will be ignored only if the sales price less purchase price is negative. For example, if a dealer purchases two cars, in which he earns a profit of Rs. 60,000 in one and cause a loss of Rs. 30,000 on the second one. The dealer, in such a case, has to pay tax on Rs. 60,000 only.
The same shall be part of the margin and added to the value of goods in case of any other added value through refurbishing, repair, reconditioning, etc.
If the second-hand dealer is not selling or purchasing goods but acting as an agent to find the buyer for a seller, then such scheme will be in-applicable to such dealer. The rate of 18% GST is applicable on the received commission by the dealer, either from the buyer or from the seller.
If a dealer from another registered dealer purchases second-hand goods, GST is secured by the selling dealer. As per standard ITC rules, the GST paid by purchasing dealer is allowed as an input tax credit to the individual.
The dealer selling the particular good is required to pay GST, not on the total value, instead of on the margin amount.
The dealer is payable for the tax on his margin only if the person is selling the second-hand goods to a customer. GST amount and GST rate are to be presented in the invoice. Therefore, the margin amount of the seller can be determined from the purchase of goods. And for obvious reasons, no seller wants to let the purchaser know his margin.
In Repossession Case, Value of Purchase From Defaulting Borrower
The purchase price (of second-hand goods dealer) will be calculated as Original Purchase price less five percentage points for every quarter or part in the case of goods that are repossessed from the defaulting borrower.
The GST rates to be implemented to used goods would be the same as if they were new goods since there is no distinction between new goods and second-hand goods under GST Law. For example, if a 28% GST rate is relevant on a car, then on the selling of the second-hand car, also 28% GST rate is applicable.