GST Relief for Used Machinery Dealers: Gujarat AAR Allows Margin Scheme for Second-Hand Goods Under Same Registration [Read Order]

In a significant decision, the Gujarat Authority for Advance Ruling (AAR) has provided clarity on the applicability of the margin scheme under GST for dealers of second-hand machinery. The ruling allows businesses to adopt the margin scheme for used goods while continuing regular GST practices for their existing trade under the same registration.

Jitendra Equipment, a Rajkot-based dealer in construction machinery like bulldozers and JCBs, had sought an advance ruling on whether it could opt for the margin scheme under Rule 32(5) of the CGST Rules, 2017, for its new line of business in second-hand equipment. The company, which currently trades in new machinery, plans to expand into the used goods market without obtaining a separate GST registration.

The AAR clarified that the margin scheme can be adopted exclusively for second-hand goods while following standard valuation rules for other business activities. Under Rule 32(5), the value of supply for used goods is calculated as the difference between the selling price and the purchase price, provided no input tax credit (ITC) is claimed on the purchase. If the margin is negative, it is ignored, meaning no GST is levied.

The authority also addressed whether the scheme could be applied selectively based on the supplier’s registration status. It ruled that the applicant could choose the margin scheme for purchases from unregistered dealers while opting for regular GST treatment paying tax on the full sale value and claiming ITC for acquisitions from registered dealers. This flexibility is permitted as Rule 32(5) is optional, not mandatory.

On the question of repair costs, the AAR held that expenses for refurbishment or improvement cannot be added to the purchase price when calculating the margin. Additionally, ITC cannot be claimed on such costs if the margin scheme is applied. The ruling referenced a similar decision in the case of Tej Kumar Jain (2021), where the Rajasthan Appellate Authority had upheld this interpretation.

Regarding tax liability, the AAR confirmed that no GST is payable under reverse charge mechanism (RCM) for intra-state purchases of second-hand goods from unregistered dealers, as exempted under Notification No. 10/2017. However, the authority declined to rule on e-way bill and e-invoicing requirements, stating these issues fall outside the scope of advance rulings.

The bench, comprising Member (SGST) Kamal Shukla and Member (CGST) P.B. Meena, emphasized that the margin scheme aims to prevent double taxation, as second-hand goods have already borne tax in their initial supply. The ruling provides much-needed clarity for dealers navigating the complexities of GST compliance in the used machinery market.

This decision is expected to streamline operations for businesses like Jitendra Equipment, enabling them to diversify into the second-hand goods segment without cumbersome regulatory hurdles. The AAR’s straightforward interpretation of Rule 32(5) offers a practical framework for dealers to manage their tax liabilities effectively.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates