Updated on: Jul 29th, 2023
2 min read
GST was introduced to have a unified and centralised taxation system on goods and services. Various schemes have been introduced under the GST regime, the margin scheme being one of them.
In general, GST is always levied on the transaction value of the goods. The margin scheme is mainly applicable to second-hand goods. Here, the GST is charged on the difference between the value of the supply of the goods and the purchase price of the goods. GST is levied only on the marginal amount to avoid double taxation as the goods that have been previously taxed enter the supply chain once again.
Rule 32(5) of the CGST Rules, 2017 provides the mechanism for the scope of supply and value of GST where the person is a second-hand goods dealer. The value of supply will be calculated as the difference between the purchase price of the goods and the selling price of the goods, and where the value of supply is negative, it shall be ignored.
For goods to qualify as second-hand goods, the following conditions shall be met-
A notification dated 28th June 2017 (Notification No.10/2017) exempts a second-hand goods dealer from paying CGST upon buying such second-hand goods from an unregistered supplier. The exemption is levied on intra-state supplies with regard to the entire amount of CGST payable in that case. A similar notification is issued under the IGST Act.
M/s Zenit Enterprises Ltd is a dealer in second-hand two-wheelers. They purchase a second-hand Honda Activa (original price – Rs.77,000) for Rs.42,000 from an unregistered person. They sell the same vehicle for Rs.55,000 after minor refurbishing work. As per the 28th June 2017 notification, the supply of the two-wheeler to the company for Rs.42,000 is exempted. However, GST will be levied on the sale transaction of Rs.55,000 with the customer. For GST, the value will amount to Rs.13,000 (difference between Rs.55,000 and Rs.42,000). Since the margin scheme is being opted for, the company cannot claim any input tax credit.