The Rajasthan Authority for Advance Ruling ( AAR ) has held that used metal scarps are not second-hand good and have no benefit under the margin scheme in terms of Rule 32(5) of Central Goods and Service Tax ( CGST ) Rules 2017.
M/s Hitesh Gwalani (the applicant) proposed to Start a Business Selling various types of Scrap like old used Iron Scrap, used Lead Acid Batteries old used Aluminium utensils & other Aluminium Scrap, old used brass utensils and other scrap, used old steel utensils scrap, old used scrap of copper, used waste plastic bags & used plastic PET bottles etc. scrap) in small quantities (50 to 500kg approx.) from various unregistered suppliers situated within the State of Rajasthan and outside Rajasthan.
The applicant sought determination on the question as to whether the used Iron Scrap, used Lead Acid Batteries old used Aluminium utensils & other Aluminium Scrap, old used brass utensils and other scrap, used old steel utensils scrap, old used scrap of copper, used waste plastic bags & used plastic PET bottles etc. qualify as second-hand goods and thus covered under the Margin Scheme notified under Rule 32 (5) of the CGST Rules, 2017.
It was submitted that normally GST is charged on the transaction value of the goods. However, in respect of second-hand goods, a person dealing in such goods is 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 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.
Rule 32(5) CGST Rules, 2017 specifies that 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 the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.
It was evident that for goods to qualify as second-hand goods as per Rule 32(5) of the CGST Rules, 2017 such goods need be (1) used goods as such or goods after minor processing that does not change the nature of goods (2) goods on which no Input Tax Credit has been availed.
It was found that the Applicant does not avail of Input Tax Credit on such used Iron Scrap, used Lead Acid Batteries old used Aluminium utensils & other Aluminium Scrap, old used brass utensils and other scrap, used old steel utensils scrap, old used scrap of copper, used waste plastic bags & used plastic PET bottles etc.
“The applicant is dealing with used Iron Scrap, used Lead Acid Batteries old used Aluminium utensils & other Aluminium Scrap, used old Steel utensils scrap & old used scrap of copper, old used Brass utensils and other scrap, used waste plastic bags& used plastic PET bottles, therefore it cannot be covered under the definition of Second Hand Goods as these items can be termed as scrap which are to be consumed/melted for manufacture of the new item and thus the nature of goods is changed.”, the authority observed.
The authority comprising Mahipal Singh and Mahesh Kumar Gowla held that the items to be dealt with by the applicant do not qualify to be Second-Hand Goods and therefore the applicant is not eligible to operate under the Margin Scheme in terms of Rule 32(5) of Central Goods and Service Tax Rules, 2017.
It was found that the Central Government has issued Notification No.8 /2018 (Central Rate) dated 25.01.2018in respect of the Margin Scheme under Rule 32(5) of the CGST Act,2017. On perusal of same, the authority viewed that the benefit of Margin Scheme is available only concerning Motor Vehicles whereas the items to be dealt with by the applicant such as used Iron Scrap, used Lead Acid Batteries old used Aluminium utensils & other Aluminium Scrap, used old Steel utensils scrap & old used a scrap of copper, old used Brass utensils and another scrap, used waste plastic bags& used plastic PET bottles are different from Motor Vehicles.
The AAR held that since the items to be dealt with by the applicant do not qualify to be Second-Hand Goods, the applicant is not eligible to operate under the Margin Scheme in terms of Rule 32(5) of Central Goods and Service Tax Rules, 2017 read with corresponding provisions of SGST Rules, 2017.
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