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Second hand goods

There is a very huge market share of used car & second hand goods sales in India and gradually growing with e-commerce platform also like Carwale, Justdial, Olx, Zigwheels etc. Even books, cloths and other low value items also getting attention in this industry. Now, every second hand goods dealer knows that GST is leviable on such goods. But on which value GST is leviable is a concern to such goods dealer. For that let’s understand concept of taxable value of Second hand goods sales with the example.

What is the taxable value of Second hand goods? Section 15(5) of the Central Goods and Services Tax Act described the Valuation of Second Hand Goods. The act states that the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed. Rule 32(5) of “the Central Goods and Service Tax (CGST) Rules, 2017 state as:

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 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.”

In respect of second hand goods, a person dealing is such goods may be allowed to pay tax on the margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the Margin scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.

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As per Rule 32(5) A few conditions shall be followed by a second hand goods dealer to avail the benefit of the rule of margin scheme:

  • The supply should be of second hand goods only: Pre-owned goods are not necessarily deemed to be second hand goods or used goods. The goods should actually be used before. The person should be dealing in both buying and selling of second hand goods. Just one or two sales of unwanted second hand goods/assets cannot be deemed to be dealing in such goods.
  • Minor processing is allowed: The dealer can carry out minor processing like repairs, refurbishing, re-boxing, etc.
  • Nature of goods should not change: If different accessories and goods are bought and assembled into a new kind of product, which is different in nature as compared to the goods bought earlier, the valuation rule benefit would not apply.
  • No input tax credit: should have been availed on purchases. The taxes paid on purchases either to seller or to Government under reverse charge, both should not have been claimed as Input tax credit.
  • Losses cannot be set-off: Where the selling price is lower than the purchase price, tax on losses shall be NIL and such negative margin cannot be set-off for tax payable on other positive margins.


Example: Honest Computer Ltd, which deals in buying and selling of second computer,laptop,servers etc, purchases a second hand IBM Server (Original Invoice value was Rs. 5 akhs) for Rs. 1,00,000/- from an unregistered person and sells the same after minor updating (Updating Cost is Rs. 10000/-) in September 2017 for Rs. 1,50,000/-. The supply of the IBM Server to the company for Rs. 1 lakhs shall be exempted and the supply of the same by the company to its customer for Rs. 1.5 lakhs shall be taxed and GST shall be levied. The value for GST purpose shall be Rs. 40000/-, i.e. the difference between the selling and the purchase price plus updating cost of the company.

Accounting Treatment of Second hand goods sales

1. Purchase of IBM Server Rs.  Rs.
Dr. Purchase Account 100000
Cr. Supplier Account 100000
2. Repairing Cost incurred
Dr Purchase Account 10000
Cr. Bank/Cash Account 10000
3. Sale of IBM Server
Dr. Customer Account 150000
Cr. Goods Second Sales Account 150000
4. GST calculation
Sales Proceeds 150000
Less:
Purchase Cost 100000
Repairing Cost 10000 110000
Taxable Amount 40000
GST @ 18% 7200
5. Payment of GST
Dr. GST expenses 7200
Cr. Bank Account 7200
 By ITG

Note: Honest Computer Ltd has opted Margin scheme for transaction of Second hand goods, can’t issue any taxable invoice to customer as well as the company also not eligible to claim any ITC of purchase of Server.


 

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2 thoughts on “What is the taxable value of Second hand goods?

  1. Marry John says:

    Whether RCM applicable on Second hand goods transaction with unregistered dealer?

    1. Vishal Khatri says:

      RCM is only applicable when inter state transaction of Second hand goods when dealer is unregistered. Within state RCM not attract

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