Margin Scheme for second hand goods under GST: Article by Adv Dhaval Patwa

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Dhaval H. Patwa

Normally under GST, supplier of any goods or services or both is charging CGST, SGST/UTGST or IGST as applicable on the transaction value of supply except the said supply is Nil rated or exempted from whole of the tax or Non GST supply or not considered as supply under schedule III of CGST Act. The provisions for determining the transaction value of goods or services are provided in section 15 of the CGST Act and the same has been made applicable to IGST Act as per section 20 of IGST Act. The Rules for valuation are framed under Rule 32 of the CGST & SGST Rules.

However to avoid double taxation on the supply of goods which has been taxed already, an option to determine transaction value has been given to the dealer who is dealing in second hand goods under rule 32(5) of CGST Rules. As per rule 32(5) of the CGST Rules, in the case of a person who is dealing in buying and selling of second hand goods, the transaction value shall be the difference between the selling price and the purchase price which is known as Margin. The main features of the scheme are as under:

 Person must be supplier of taxable goods.
 Such supplier must be registered under GST.
 Such supplier must be dealing in second hand goods. ( i.e. Cars, Televisions, Refrigerators, Jewellery, etc.)
 Second hand goods means used goods which are not new and which has been used prior.
 Such supplier opting for Margin Scheme is liable to pay GST on Margin and if Margin value is negetive, no GST shall be payable in such case.
 Margin means difference between the selling price and purchase price.

Ex. Mr. Patel is engaged in business of buying and selling old cars. He has purchased old car in Rs. 2,50,000/- and sells it in Rs. 3,00,000/- to Mr. Shah. The Margin value shall be Rs. 50,000/- on which Mr. Patel is liable to pay GST.

 Such supplier may selling used goods as such or after minor processing such as repairing, refurbishing, reconditioning, polishing etc. which does not change the nature of goods.

If jeweller purchasing jewellery from unregistered person for melting it and remaking new jewellery is not eligible for Margin Scheme. But if he sells it in same form he will be eligible for Margin scheme. In the recent Case of Attica Gold Pvt. Ltd. ( KAR ADRG 15/2020 dtd. 23/03/20), Advance Ruling Authority of Karnataka has held that applicant dealer who is purchasing used gold jewellery from unregistered person and selling the Same after cleaning and polishing them can take benefit of Margin scheme.

As per Advance Ruling given by AAR Rajasthan in case of Shambhu Traders Pvt Ltd. (RAJ/AAR/2018-19/35 dtd.15/02/2019), used lead acid batteries have been considered as used goods and as no processing has been done on them they have qualified as second hand goods and the applicant dealer held entitled to operate under Margin Scheme.

As per PIB press release dtd. 15/07/17, the provision applies to all taxable person dealing in second hand goods including old and used empty bottles.

In case any other such value is added by way of above mentioned work, the same shall also be added to the value of goods and be part of the Margin.

In above example, If Mr. Patel sells Motor Car in Rs. 3,00,000/- after incurring necessary repairing expenses of Rs. 20,000/- in this case amount of Rs. 20,000/- shall be the part of the margin and Mr. Patel is liable to pay GST on full amount of Margin i.e Rs. 50,000/-.

 Such supplier shall not be eligible for Margin Scheme if he has availed input tax credit under GST or Cenvat Credit under Cenvat Credit Rules or ITC under State VAT Act.

 Such supplier availing benefit of Margin Scheme is not allowed to give recipient a taxable invoice and the registered recipient of such second hand goods under the Margin Scheme cannot claim input tax credit.

 The proviso to the rule 32(5) provides that in case of the purchase value of goods repossessed from an unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.

Ex. Mr. Modi has taken Motor Car Loan from ABC Ltd on 04/06/19 amounting to Rs. 4,00,000/- and he purchased a Motor Car. He defaulted in paying the loan amount so ABC Ltd. has repossessed that Motor Car from Mr. Modi on 08/04/20 and sold it on 06/05/20. In this case for the purpose of recovery of loan, deemed purchase price of Motor Car will be Rs.3,00,000/- (Rs.4,00,000/- – Rs. 1,00,000/-) [5% per quarter from June ’19 to April ’20 – i.e. 5 quarters]. If ABC Ltd. sold this Car in Rs. 3,50,000/- , the value of supply i e. Margin Value will be Rs. 50,000/- and ABC Ltd. will be liable to pay GST on Rs. 50,000/- (Rs.3,50,000/- – Rs.3,00,000/-).

As per Notification No.10/2017 – Central Tax (Rate) dtd. 28/06/17 when a taxable person is engaged in business of buying & selling of old goods he is not required to pay tax on reverse charge basis u/s. 9(4) of CGST Act when he received intra state supplies of second hand goods from an unregistered person. However if it is interstate supply then also such dealer is not liable to pay tax under RCM basis as per Advance Ruling given in the case of Shambhu Traders Pvt. Ltd. (RAJ/AAR/2018-19/35 dtd.15/02/2019) by Advance Ruling Authority of Rajasthan. However after 01/04/19 there will not be any importance of this notification as promoters in real estate sector are the only class of registered person to pay GST under reverse charge basis u/s. 9(4) of CGST Act as per Notification No. 07/2019 – Central Tax (Rate) DTD. 29/03/19 (w.e.f 01/04/19).

Tax rate on sale of seond hand goods

The GST rates to be applied to second hand goods would be same as if they were new goods except rates prescribed for motor vehicles. The tax rate on motor vehicles was 28% plus applicable GST compensation cess. But w.e.f 25/01/18 by Notification No. 8/2018-CT(Rate) the rates have been reduced (For Second hand motor vehicle) and it will be as under:

Category Rate Compensation Cess
Petrol, LPG or CNG driven motor vehicles with engine capacity of 1200cc and length of 4000 mm or more 18% IGST

(9% CGST + 9% SGST/ UTGST)

Diesel driven motor vehicles with engine capacity of 1500cc or more and length of 4000mm or more 18% IGST

(9% CGST + 9% SGST/ UTGST)

Sports Utility Vehicles and Utility Vehicles motor vehicles with engine capacity of 1500cc or more 18% IGST

(9% CGST + 9% SGST/ UTGST)

Motor vehicles other than above 12% IGST

(6% CGST + 6% SGST/ UTGST)



The above tax rates are also applicable to all taxable persons selling old cars which were their business asset. In their case, the margin will be the consideration received for supply of old and used motor vehicle and the depreciated value as per depreciation claimed u/s.32 of Income Tax Act.

(The author is a practicing Tax Advocate at Surat. He is a regular writer to Tax Today. He may be contacted at


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