Many registered persons who are not dealing in supply of vehicles purchase certain vehicles specifically cars for the business for example, transportation of their employees. Such cars are either purchased before the introduction of GST under the earlier laws or after introduction of GST and are capitalized in the Books of Accounts as Capital Assets. After its use when such old vehicle is sold again, the first question which arises is whether such transaction falls under the scope of “Supply” under GST or not. Credit on such purchase was neither available under the earlier regime nor available under GST and is specifically exempt under the provisions of Section 17(5) of CGST Act, 2017. For a transaction to be treated as a Supply under Section 7 it should be in the course of business or furtherance of business. If we read the definition of “Business” u/s. 2(17), the said activity of selling a used / old car of the business entity cannot be categorized as being done “in the course or furtherance of business”. However, if we take a look at Entry 4 (a) of Schedule II of the CGST Act, it covers goods forming part of the assets of a business transferred 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 is also a supply of goods. Therefore, such activity of selling capital assets of the company is to be considered as a Supply and GST would be levied on it. The Government in this regard has notified vide Notification No. 08/2018-Central Tax (Rate) (dt. 25.01.2018) the rate at which GST would be levied on such Supply which is as under:

 

1. Old & used petrol, LPG or CNG driven motor vehicle having engine capacity >=1200CC & length of >=4000mm 18%
2. Old & used diesel driven motor vehicle having engine capacity >=1500CC & length of 4000mm 18%
3. Old & used motor vehicle of engine capacity >1500CC (SUVs & UVs) 18%
4. Old & used motor vehicle other than covered in Sl No.1 to 3 12%

 

The valuation would also be in accordance with the above Notification which prescribes marginal scheme which states that tax would be levied on the margin. For those who have claimed depreciation on it, value would be CONSIDERATION RECEIVED - DEPRECIATED VALUE and in other cases it would be Selling Price – Purchase price. Thus, GST at present would be payable as per the aforesaid notification.
However, the issues whether such transaction would attract GST or not is still debatable as there are numerous case laws in the VAT regime where such transaction was held by the Hon’ble Courts to be not taxable.

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