Used Cars and GST by Bharat Bhushan (Advocate)

Sale of Used Cars – GST Implication.

One thing about GST is certain and that is confusion. One of such confusions is about GST implications on sale of Old and used Cars. Business houses purchase Motor Cars for use of its staff on payment of GST at appropriate rate. Input Tax Credit of GST paid on Motor Cars is not available. Earlier also credit of Central Excise Duty and VAT paid on such cars was not available. Over a period of time, these cars are disposed off. Now, the question is whether GST is payable on sale of such old and used cars. GST is leviable on ‘Supply” as defined under Section 7 of the CGST Act, 2017. Relevant portion of said definition of ‘Supply’ is reproduced below for ready reference:-

“7. Scope of supply. – (1) For the purposes of this Act, the expression “supply” includes—

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b)—;

(c)—-

From the above referred legal provision it is clear that GST is payable only on those sales which are made in “course of furtherance of business’. The term ‘business’ is defined in Section 2(17) of the CGST Act, 2017 which reads as under:-

“(17) “business” includes—

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d)—

(e) —

 

Similar controversy, as to whether VAT /Sales Tax is payable on Sale of Used Cars, was there in pre-GST era. The Hon’ble High Court of Delhi in Panacea Biotech Ltd. Vs. Commissioner of Trade & Taxes, W.P. © No. 4717/2011 examined at length the said controversy. The Hon’ble High Court examined the definition of ‘business’ as contained in Section 2© of Delhi Sales Tax Act, 1975 which reads as under:-

“(c) “business” includes:-

(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern, and

(ii) any transaction in connection with, or incidental ancillary to, such trade, commerce, manufacture, adventure or concern.”

The Hon’ble High Court recorded its findings in following words.

“11. In the present case, the main business of the petitioner is manufacture and sale of pharmaceutical products and the vehicles are used by it in the course of business (as written by Respondent No.-2 in the impugned order (Annexure A-1)). This may lead to the inference that proceeds from the sales of such vehicles should have been included in the turnover and must be taxed accordingly. But the selling of used cars cannot by any stretch of the imagination be characterized as “ancillary” or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air conditioned vehicles especially designed to store and ferry pharmacy products. They were purchased for use of company employees and executives, for office purposes. At the stage of purchase, they suffered sales tax, which the assessee, as buyer, was bound to pay. However, the assessee never held them for the purpose of sale and purchase, but for using them. After their use, having regard to lapse of time, and their wear and tear, the assessee decided to replace them. These cars were then sold. Their sales, in a sense are twice removed from the business of the assessee. They cannot be called “incidental” or “ancillary” to the manufacture and sale of pharmaceutical products, which the assessee is engaged in.

  1. This court also notices that the vehicles had already been taxed once under the first point tax regime then in cases of transactions which are redundant and cannot be considered under the definition of “business” as they were aimed mainly to get rid of old vehicles which are carried on by persons in normal course of their lives as well and previous orders of the Appellate Tribunal have also been in favour of the petitioner itself, the levy of sales tax on an already taxed vehicle with little relation to the business will give rise to an anomaly. In view of the above discussion, it is held that the view taken by the respondents, regarding inclusion of the sales transaction of the cars in question, in the turnover of the petitioner, is unsustainable in law. The impugned orders are consequently quashed; the writ petition is allowed. In the circumstances, there shall be no order as to costs.”

The Hon’ble Delhi High Court found that again levying Sales Tax on used vehicle which already taxed would result in an anomaly and that sale of such vehicles are not covered in the definition of ‘business’. In GST also, levy of tax on sale of such vehicles will certainly lead to anomalous situation. Now, before reaching to any definite conclusion we will compare the relevant portions of above mentioned two definitions of ‘business’.

CGST ACT Delhi Sales Tax Act,
“(17) “business” includes—

 

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

 

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

 

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

“(c) “business” includes:-

 

(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern, and

 

(ii) any transaction in connection with, or incidental ancillary to, such trade, commerce, manufacture, adventure or concern.”

A careful reading of the above reveals that both the definitions are in pari materia. The only difference is that corresponding provisions to clause (c) of CGST definition is not available in Delhi Sales Tax definition. By the said sub-clause, the transactions which are not done regularly are also included. However, such isolated transactions should also be in the nature of transactions referred in sub-clause (a). The Hon’ble High Court has clearly held that sale of such used vehicle have little relation to the business of the assessee. Therefore, in view of the author, the said judgment of Hon’ble Delhi High Court is squarely applicable and as such no GST is leviable on such transactions.

Disclaimer: This article is the property of the author. No one shall publish, copy, reproduce or use it in any manner, for any purposes (except for personal, non- commercial use) without the written permission of the author provided that it can be shared with due credit to the writer. The author shall not be responsible or liable for anything done or omitted to be done on the basis of this article.

(DISCLAIMER: The views expressed are strictly of the author and GSTMantra.in   doesn’t necessarily subscribe to the same. GSTMantra.in  is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

Leave A Comment