Outward supply of second-hand goods
When a registered second-hand goods dealer supplies second-hand goods, the dealer is liable to charge GST on the second-hand goods. For this, 2 options have been given to the dealers:
- Charge GST on the full transaction value. Here, the dealer is eligible to claim input tax credit of the tax paid on purchase of the used goods.
Example: Veena Marts, a registered second-hand goods dealer in Karnataka, supplies a used camera to a consumer in Delhi for selling price of Rs. 15,000. The camera was purchased for Rs. 10,000 from a registered dealer in Karnataka, on which CGST + SGST of Rs. 1,400 each was charged. (GST rate applicable to cameras is 28%)
Here, Veena Marts will charge IGST @28% on Rs. 15,000 (selling price), which is Rs. 4,200. Veena Marts will avail ITC of CGST + SGST of Rs. 1,400 each on the camera.
OR
- Charge GST on the margin or profit earned on the goods, that is, the difference between the selling price and the purchase price. This is called the Margin Scheme, which has been given to second-hand goods dealers. However, for a dealer to avail this scheme, the following conditions have to be fulfilled:
- The goods should be supplied as is or after minor processing, which does not change the nature of the goods
- No input tax credit should be availed on the purchase of the goods
Example: Veena Marts supplies a used camera to a consumer in Delhi for selling price of Rs. 15,000. The camera was purchased for Rs. 10,000 from a registered dealer in Karnataka, on which CGST + SGST of Rs. 1,400 each was charged. Veena Marts has opted for the margin scheme and hence, has not availed the input credit on purchase of the used camera and has supplied the camera as is.
Here, Veena Marts’ margin earned on the camera is Rs. 5,000 (Selling price minus purchase price). On Rs. 5,000, Veena Marts has to charge GST @ 28%. Hence, IGST to be charged here is Rs. 1,400 and Veena Marts cannot avail ITC of CGST + SGST of Rs. 1,400 each.
Note: For a dealer who has opted for the margin scheme, there can be a scenario where the second-hand goods are sold at zero margin or for a lesser price than the purchase price. In this case, no GST will be applicable on the supply.
Conclusion
For second-hand goods dealers, the margin scheme has been given as an option for paying tax on supply of second-hand goods. The benefit of opting for the margin scheme is that the dealer needs to pay tax only on the margin earned on sale. This is very useful for dealers who mostly purchase used goods from end customers. As there is no applicability of input tax credit on these purchases, these dealers need to pay tax only on the margin earned on sale. However, dealers opting for the scheme should ensure that ITC on the goods is not availed and the goods are supplied as is or after minor processing which does not change the nature of the goods.