GST on sale of car by a business house
The present moot question is whether GST on sale of car (old and used) by a Business House.
GST is leviable on ‘Supply’ as defined under Section 7 of the CGST Act, 2017 (hereinafter referred as Act). Relevant portion of said definition of ‘Supply’ is reproduced below for ready reference:-
‘7. The scope of supply. – (1) For the purposes of this Act, the expression ‘supply’ includes-
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of the business;
From the above referred legal provision it is clear that GST is payable only on those sales which are made in ‘course of furtherance of business’.
Section 16 of the Act deals with provisions when input tax charged from him will be available for credit. Section 16 provides as under:
16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
It means input tax charged on any supply of goods or services which are used or intended to be used in the course or furtherance of his business is available for credit. It means input tax paid on goods or services which are not used in the course or furtherance of his business is not available.
Further sub section 5 of Section 17 of the Act provides when the motor vehicle used by a business will be considered to be used in the course or furtherance of his business for availing credit of input tax charged on them. It provides as under:
17.(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
(a) motor vehicles and other conveyances except when they are used –
(i) for making the following taxable supplies, namely:-
(A) a further supply of such vehicles or conveyances; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods;
It means motor vehicles used for any other purpose, then mentioned under Section 17 of the Act will not be considered as used in the course or furtherance of his business so credit of input tax paid on those will not be available to them.
Further capital goods are defined under subsection 19 of Section 2 of the Act which is as under:
(19) ‘capital goods’ means goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;
This definition clearly mentions that capital goods so far GST is concerned are only those goods which are capitalized claiming input tax credit and which are used or intended to be used in the course or furtherance of business.
Thus capital goods are those which fulfills two conditions which are capitalized for taking input tax credit and used in the course or furtherance of business.
Schedule II to the GST Act provides what is considered as the supply of goods or services. It also defines when discard of goods will be considered as the supply of goods.
As per Article 4 of Schedule II of the Act
4. Transfer of business assets
(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;
From the interpretation of this article of Schedule II, it is drawn that only those goods which form the part of assets of a business , which are discarded will be considered as the supply of goods. It means that those goods which are not forming part of assets of business, transfer or discarding of them will not be considered as the supply of goods in the course or furtherance of his business.
Since as per provisions of Section 17(5) of the Act, input tax is not available on motor vehicles, so capitalization of those goods will not be considered as capital goods as per definition of capital goods. As capital goods are only those which are capitalized for claiming input tax and are used in the course or furtherance of business. Since no credit of input, tax is allowed on motor vehicle, neither these are deemed used in the course or furtherance of business as per Section 17 (5) of the Act,
So the sale of second-hand motor vehicle on which input credit is not claimed will not be considered as goods forming part of business asset and thus discarding of it will not be considered as the supply of goods in the course or furtherance of his business.