Refurbishment cost not includible in purchase price under margin scheme: AAAR

Case Details: Tej Kumar Jain, In re - [2022] 142 taxmann.com 134 (AAAR-RAJASTHAN)

Judiciary and Counsel Details

• • Satish Kumar Agrawal & Ravi Jain, Member
  • Yash Dhadda, CA for the Appellant.

Facts of the Case

The appellant planned to engage in the business of sale and purchase of old/used vehicle. To bring the purchased cars to refurbished condition, the appellant would be incurring some expenses. The appellant would not be claiming any input tax credit and wanted to pay tax on the sale of old/used cars under the margin scheme.

Notably, the GST law provides that the value of supply under the margin scheme would be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

The appellant contended that the refurbishment cost is part of the ‘purchase cost’ and therefore, should be deducted while computing the margin under the scheme considering the intention of the law to compute the margin on the sale of goods.

AAAR Held

The Rajasthan AAAR held that from the plain reading of the provisions, the words used are ‘purchase price’ and not the ‘purchased cost’, whereby purchase price means only the amount paid by the applicant at the time of purchase of used cars. Therefore, refurbishment cost incurred on the old/used cars in order to make them more marketable would not form part of the ‘purchase price’ for the purpose of computing the margin of the supplier on supply of second-hand vehicle.

The appellant argued that if the view of Rajasthan AAR in this case is applied to the sales amount then the selling price would only be the amount charged for the sale of the old car which would exclude the amount charged from the customer for the refurbishment expenses. This would be against the valuation provisions under the GST law i.e. Section 15(1) of the CGST Act.

The AAAR affirmed the views of Rajasthan AAR and held refurbished cost is not allowed to be deducted. It was further held that the valuation provisions provided under Section 15(1) cannot apply where the supplier is paying GST under the margin scheme as the margin scheme specifically provides the manner of computing the value of supply.