AAR Holds Margin Scheme Inapplicable to Unregistered Dealer Selling Used Second‑Hand Cars under GST [Read Order]

In a recent ruling, the Karnataka Authority for Advance Ruling (AAR) examined whether the “Margin Scheme” under GST applies to the purchase and resale of second-hand cars by an unregistered dealer.

The applicant, Shri Ramanujam Tulsi Ramadas of Mysore, had filed an advance ruling application in May 2023, stating his intention to buy used cars from unregistered sellers, undertake minor repairs, and resell them to unregistered buyers. He anticipated his turnover would exceed ₹40 lakh and sought clarity on tax liability, classification, and valuation.

Despite multiple opportunities for personal hearings between 2024 and 2026, the applicant failed to furnish documents proving transfer of ownership, accounting treatment, or details of repairs. The Authority noted that without such substantiation, it could not conclusively verify the nature of the transactions.

The bench comprising Shri Kalyanam Rajesh Rama Rao (Member-Central) and Shri Sivakumar S Itagi (Member-State) observed that while the term “Margin Scheme” is not expressly defined in the CGST Act, Rule 32(5) of the CGST Rules, 2017, read with Notification No. 8/2018-Central Tax (Rate), provides a special valuation method for dealers in second-hand goods.

Under this rule, GST is payable only on the margin, the difference between the selling price and the purchase price, provided no input tax credit is claimed, and the goods are sold as such or after minor processing that does not alter their nature. Negative margins are to be ignored.

The Authority further held that second-hand cars fall under Heading 8703 of the GST Tariff, covering motor vehicles designed for passenger transport. Since the applicant did not provide details such as engine capacity, vehicle length, or fuel type, the exact rate of tax could not be determined.

The Karnataka AAR clarified that the valuation of second-hand car sales is governed by Rule 32(5) of the CGST Rules, subject to compliance with Notification No. 8/2018, and motor vehicles are classifiable under Heading 8703, with assessable value being the margin between sale and purchase price.

Also, the Authority cannot issue advisory opinions beyond matters specified under Section 97(2) of the CGST Act.

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