Second-Hand Goods: Margin Scheme Excludes Repair Costs; No ITC on Improvements

Case Name: Jitendra Equipment (GST AAR Gujarat)

Case No. GUJ/GAAR/R/2025/05

Dated- 21.03.2025

Section: Rule 32(5) of the CGST Rules, 2017

Subject matter: Implication of margin scheme for second-hand goods along with standard valuation: treatment of repairs and RCM.

Brief-

In the case of Jitendra Equipment (Advance Ruling No. GUJ/GAAR/2025/05), the Gujarat Authority for Advance Ruling clarified that the applicant, is engaged in the business of trading of construction machineries & equipment like bulldozers, JCB, etc. ‘the, can adopt Rule 32(5) of the CGST Rules, 2017 (margin scheme) for their new line of business involving second-hand goods, while continuing regular GST valuation for existing business. The authority ruled that this option is available for goods purchased from unregistered dealers, and for goods from registered dealers, regular valuation with GST on full sale value and ITC claim is allowed. Importantly, cost of repair or improvement is not included in the purchase price under Rule 32(5), and ITC on such costs cannot be availed. Furthermore, no GST is payable under RCM for purchases from unregistered dealers if the supply is intra-state. The authority did not rule on the e-way bill and e-invoicing question due to its vagueness and scope limitations under Section 97(2) of the CGST Act.

Important Paragraphs-

Para-19. Moving on to the fifth question, raised by the applicant viz- whether e-way bill and e-invoicing is applicable for appellant if they follow margin scheme? If yes then which value should be shown in e-way bill and e-invoice and which section as the data of e-way bill and e-invoice are getting auto populated in GSTR-1

Para-20. The question at best is vaguely framed. Before adverting to answering the question, we find it prudent to reproduce the relevant extract of Section 97(2) of the Central Goods and Services Tax Act, 2017, viz

Section 97. Application for advance ruling

(2) The question on which the advance ruling is sought under this Act, shall be in respect of,

  (a) classification of any goods or services or both;

 (b) applicability of a notification issued under the provisions of this Act;

 (c) determination of time and value of supply of goods or services or both;

 (d) admissibility of input tax credit of tax paid or deemed to have been paid,’

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

 As is evident, e-way bill and e-invoicing does not find a mention under serial No. 2(a) to (g), supra. We therefore, refrain from answering this question.

Para-21. Moving on to the sixth question raised by the applicant viz – for the purchase of second-hand goods from registered/unregistered dealer, does appellant require to pay any tax on reverse charge/ forward charge basis.

Para-22. Again, as far as purchase of second-hand goods, from registered person is concerned, we find that the question of the applicant paying tax under reverse/forward charge simply does not arise. This part of the question, is vaguely framed. As far as the question relates to purchase of second-hand goods from unregistered dealers is concerned, we find that the same is exempt from payment of tax under RCM in terms of notification No. 10/20217-CT(R) dated 28.06.2017, provided the supply falls within the ambit of intra-state supply.

“RULING”

1. The applicant can opt for valuation of outward supply as per rule 32(5) of the CGST Rules, 2017 for the new line of business solely [ie for dealing in secound hand goods] besides following regular valuation procedure for their existing business.

2. The applicant can opt for valuation of outward supply in terms of Rule 32(5), ibid, for purchases made from unregistered dealer and for purchases from registered dealer they can pay GST by following the regular mode [ ie by discharging GST on full amount of sales considcration and claim ITC ]

3.The purchase price as per Rule 32(5) will not include cost of repair/ improvement.

4. ITC of repair/improvement cost cannot bc availed by the applicant in case they are availing the benefit of Rule 32(5), ibid.

5. No ruling for question no. 5 in terms of para 20 above.

6. No GST is to be paid under RCM for purchase of sccond hand goods from unregistered dealer if the supply falls within the ambit of intra state supply.

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