No RCM liability on used/scrap vehicle purchased from unregistered dealers by registered dealer- AAR

Introduction:

An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advanced Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appellate authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR.

The question of law which is address through this AAR is as follows:

• Whether registered persons, registered as composition dealers can buy used/scrap vehicles from unregistered dealers and whether on such purchases, should the registered person pay GST on Reverse Charge Mechanism (RCM) basis.
• Whether there is any RCM exemption limit for the purchase of used/scrap vehicles from such unregistered dealers.

Facts of the application made to AAR, by taxpayer ‘M/S.Ahmedraza Abdulwahid Munshi (Nadim Scrap) (applicant)’, dated 18-Feb-2021:

The applicant, M/S. Ahmedraza Abdulwahid Munshi (Nadim Scrap) contention is a scrap dealer involved in the purchase of used/scrap vehicles. An application was filed with the Gujarat AAR on the above stated questions and the applicant based their contention on several notifications issued by the government in this regard.

Three notifications and one amendment to the Act which are relevant to the instant case were cited by the applicant as follows.

• Pursuant to Section 9(3) of the CGST Act, 2017 and notification no. 04/2017-CT(R ) dated 28.Jun.2017 listed the supply of goods on which GST had to be paid by the recipient of goods on RCM basis. This notification was further amended as notification no. 36/2017-CT(R ) dated 13.Oct.2017 wherein for the supply of seized and confiscated goods, supply of used vehicles, waste and scrap and used and old goods, supplied by Central/State government, Union territory or local authority, the recipient of goods has to pay GST on RCM basis.
• Pursuant to Section 9(4) of the CGST Act, 2017 and notification no. 08/2017-CT(R ) dated 28.Jun.2017, when supply of goods are made by an unregistered person to a registered person, exemption from GST was granted for supplies made up to INR. 5,000/- per day. This notification was also further amended and the exemption limit was extended up to 31.Mar.2018.
• With the CGST Act amended dated 29.Aug.2018, Section 9(4) was also amended which covered specific class of registered persons and specified category of supply of goods and services. Further vide Notification no. 07/2019-Central Tax(Rate) dated 29.Mar.2019, specific recipients and specific category of goods and services were covered under RCM.

Hence, based on the above notifications and amendments to the Act and sections, the applicant concluded that they are exempt from paying GST on RCM basis when supply of goods is from unregistered persons vide Notification no. 07/2019-Central Tax(Rate) dated 29.Mar.2019 as the scraps are covered under specific category of goods and services and there are no limites too for the exemption. Further if the applicant receives used/scrap vehicles from Central/State government, Union territory or local authority, the applicant (recipient herein) will pay GST on RCM basis vide notification no. 36/2017-CT(R ) dated 13.Oct.2017.

Observations and final ruling by AAR vide Order No. GUJ GAAR/R/18/2021 dated 30.Jun.2021:

The AAR, on verification of the representation made by the applicant through the authorized representatives on 17.Jun.2021, acknowledged the clarification sought by applicant through its application. The representatives further presented their case as above.

The AAR took note of the 3 notifications and their corresponding amendments and also the amendment made to the Act and rules that the applicant being a composition dealer is liable to pay GST on RCM basis when supply of used/scrap vehicles are from Central/State government, Union territory or local authority. The AAR further concluded that there is no RCM liability on applicant, for goods received from unregistered dealers.

To Read Ruling Download PDF Given Below :