1. M/s XYZ was served a show cause notice dated XX December 2023, alleging that on the event of sale of motor vehicle, the Noticee is liable to pay GST on the sale value amounting to Rs. XXXXX/-

2. On the verification of the issue, it was found that findings of the concerned authority are not in line with the legal matrix and factual positioning of the case. 

NOTICEE’S SUBMISSIONS

 DEMAND OF GST ON SALE VALUE OF MOTOR VEHICLE IS NOT SUSTAINABLE AS MARGIN-BASED VALUATION WILL BE APPLICABLE

1. At the outset, it is pertinent to mention here that, as per Section 18(6) of the CGST Act, a registered person is liable to pay an amount equal to the input tax credit taken on capital goods, when such capital goods are supplied by the registered person. Section 18(6) of the CGST Act is reproduced herein below:

“Section 18(6)-In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.”

Thus, in the present scenario, as the ITC has not been availed by the Noticee at the time of purchase of motor vehicle, then the Noticee does not fall under the provision of Section 18(6) and therefore, not obliged to make any reversal of ITC.  

2. Further, the Noticee humbly submits that the Noticee is not liable to pay GST on the sale value rather the GST shall be discharged by the seller on margin value as this has been clarified vide Notification No. 08/2018 – Central Tax (Rate) dated 25 January 2018, wherein it has been notified about the valuation of supply at the time of sale of motor vehicles. Relevant extract of which has been reproduced herein below –

“Explanation: For the purposes of this notification, –

(i) in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act,1961(43 of 1961) on the said goods, the value that represents the margin of the supplier shall 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; and

(ii) in any other case, the value that represents the margin of supplier shall be, the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored.”

3. Thus, in pursuance of the manner as given in explanation supra, there can be two possible scenarios in which the sale value subjected to written down value may be negative or positive, the valuation and implication of GST will be as follows:

• In case, depreciation under the Income Tax Act is claimed, the sale value should be reduced by the written-down value of the asset on the date of sale. If this resulting value is positive, GST will be charged only on the profit margin. If the value is negative, no GST will be charged.
• In other cases, the sale value should be reduced by the purchase value of the asset. If this resulting value is negative, no GST will be charged. If the value is positive, GST will be charged on the profit margin, not on the whole sale consideration.

4. In this regard, reliance can be placed on the ruling of Hon’ble AAR of Gujarat in the matter of M/s Dishman Carbogen Amcis Ltd., Advance Ruling No. GUJ/GAAR/R/2022/34 cited in 2022 Taxo.online 1424 wherein it was held that the valuation in case of sale of motor vehicle shall be difference between the consideration received for supply of said car and the depreciated value of the said car and the GST would be payable on the applicable rates as per the relevant provisions of the Act. The relevant extract of the above judgement has been reproduced herein below –

 “2. The applicant has submitted that it intends to sell the same used car for a consideration of Rs. 55 Lakhs (Inclusive of all applicable taxes). The Written Down Value as per books of accounts is Rs. 47 Lakhs at the time of selling.

 3. The applicant submits that it intends to sell the car and charge GST in terms of Notification 8/2018 CT(R) dated 25-01-2018.

 4. Questions on which Advance Ruling sought.

 1.On what value, the new car purchase by the company is sold after using it for business purpose, shall the GST be charged?

……………

8. We pass the Ruling,

1. The Value for intended supply shall be the difference between the consideration received for supply of said car and the depreciated value of the said car on the date of supply. Depreciation is as per SB Section 32 Income-tax Act…………”

5. It is further submitted that in the present case, the Noticee has not availed any ITC at the time of purchase of motor vehicle as the ITC pertaining to motor vehicle is blocked as per Section 17 of the CGST Act. Relevant extract of Section 17 of the CGST Act is reproduced herein below –

“Section 17- Apportionment of credit and blocked credits- 

………………..

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely: –

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

Provided that the input tax credit in respect of such services shall be available-

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged-

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.

………………”

Conclusion

6. In the light of the submissions made above, it is submitted that the allegation made by the department to levy GST on the sale value is untenable as the GST is leviable on the margin as the sale value is reduced by the written down or the purchase value, even though the Noticee has not claimed ITC at the time of purchase of such motor vehicle.