Sale of used Motor Vehicle under GST

Background

The implementation of GST has had a positive impact on the vehicle industry. Before, dealers could not claim credit for excise duty and VAT paid, which increased the purchase price. However, GST has reduced the cascading impact of taxes, lowering the price of vehicles.

How did the car's price impact as a result of GST?

Date – July 1, 2017

Previously, vehicle owners were subjected to two primary taxes: VAT and excise duty. The total rate would be between 26.5% and 44%. In comparison, the GST rates for vehicles range from 0% and 28% along with cess from 1% to 15%. This has lowered vehicle prices and benefitted customers. Let’s compare the price for pre-GST and post-GST with a small example of an SUV car.

Let’s say the cost of manufacturing an SUV car for ABC Ltd is INR 12,53,000 plus transportation of INR 17,000 and a Sales charge of INR 21,000. What could the price be under Pre-GST and Post-GST considering the following tax rates applicable i.e., Excise duty – 30%, VAT – 14% in pre-GST and GST – 28%, Cess – 15% (for SUV) in post-GST.

Particulars	Pre- GST (INR)​	Post- GST (INR)
Cost of manufacturing	12,53,000	12,53,000
​Excise duty at 30%	3,75,900	–
Production cost	16,28,900	12,53,000
Transportation, etc.	17,000	17,000
Sales charge	21,000	21,000
Base amount for tax calculation	16,66,900	12,91,000
VAT at 14%/ GST at 28%	2,33,366	​3,61,480
Cess at 15%	–	1,93,650
Price	19,00,266	​18,46,130

By the above example, we can see that the prices of SUV cars are reduced by INR 54,136 which is a really good impact, isn’t it?

However, when there is a positive impact on the purchase of new motor cars while at the same time used vehicles were also taxed at 28% plus cess, resulting in a burden and slowness in the used vehicle market.

Date – September 11, 2017

Notification No. 5/2017 Compensation Cess (Rate)

The government increased the cess rate highest of 15% to 22% on the certain motor vehicle.

Date – October 13, 2017

Notification no. 7/2017 - Compensation Cess (Rate) and Notification no. 37/2017 - Central Tax (Rate)

Through these notifications, the government did not change the rate of tax/cess, but a 35% abatement was created, enabling 65% of the GST rate and cess to be imposed on the value of supply subject to specified criteria.

The concession is only applicable to items covered by the following HSN codes:

• 8702 - Motor vehicles for the transport of ten or more persons, including the driver or

• 8703 - Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars [other than Cars for physically handicapped persons]

The following conditions must be met:

1. Lease

• The Motor Vehicles were purchased by the lesser prior to July 1, 2017, and supplied on the lease before July 1, 2017, or

2. Others

• The supplier of the Motor Vehicle is a registered person
  

• Such supplier had purchased the Motor Vehicle prior to July 1, 2017, and has not availed input tax credit of central excise duty, Value Added Tax, or any other taxes paid on such vehicles.

The conditions effective from 13/10/2017, vide Notification no. 7/2017 - Compensation Cess (Rate) and Notification no. 37/2017 - Central Tax (Rate)

Date – January 18, 2018

However, to provide relief to taxpayers and reduce market tensions, the GST council voted to decrease tax rates on such cars at its 25th meeting on January 18, 2018, which turned out to be a boon for businesses in this area.

Date – January 25, 2018

Notification no. 1/2018 - Compensation Cess (Rate) and Notification no. 8/2018 - Central Tax (Rate)

The amendment to decrease the tax rates on the old/used motor vehicle in the 25th meeting on January 18, 2018, was made effective from 25/01/2018 onwards through Notification no. 1/2018 - Compensation Cess (Rate) and Notification no. 8/2018 - Central Tax (Rate) subject to specified criteria.

The following conditions must be met:

1. Input tax credit of GST or input tax credit of VAT, CENVAT, or any other taxes is not availed on a such motor vehicle
   

2. Value of Supply a. In the case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act,1961 the value of supply would be as per the margin scheme under GST which will be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply and where the margin of such supply is negative, it shall be ignored b. in any other case, the value of supply would be as per the margin scheme under GST which will be the difference between the value at which the goods are supplied and the price at which the goods are purchased supply and where the margin of such supply is negative, it shall be ignored

The GST rates have changed in GST Rates for Used Motor Vehicles on a number of occasions in recent years, which has confused taxpayers. The overview below outlines the rate revisions in GST Rates for Used Motor Vehicles from the start of the GST till the present in detail in order to eliminate any confusion:

Explanation. -

1. For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under
   

2. For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.