Jan 292018

Margin base valuation in case of purchase of second hand goods

Chargeability of GST: [Section 9]

There shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both,

  • Except on the supply of alcoholic liquor for human consumption,

On the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

Thus, before liability to pay GST arises two conditions must be satisfied:

  • Transaction under consideration must be a supply under GST law
  • The transaction must be entered by a taxable person.

In general the term supply means – “The total amount of a goods or service that is available to be purchased at any set period of time” Thus, in contrast to sale the term supply does not require actual delivery of goods or services to the purchaser.

Rule 32: Determination of value in respect of certain supplies:

Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods

  • as such or
  • after such minor processing which does not change the nature of the goods and
  • where no input tax credit has been availed on the purchase of such goods,

the value of supply shall be the difference between the selling price and the purchase price and

  • where the value of such supply is negative, it shall be ignored:

Purchase value of goods taken from a defaulting borrower:

  • who is not registered,
  • 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 5% points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.”

Notification No.10/2017-Central Tax (Rate):

Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts:

  • Supplies within the state
  • Of second hand goods
  • received by a registered person, Dealing in buying and selling of second hand goods
  • Supplied by any supplier, who is not registered
  • If he pays the central tax on the value of outward supply of such second hand goods,

from the whole of the central tax leviable thereon.


  1. Supplies of second hand goods are taxable under GST net
  2. RCM is not applicable in case second hand goods are purchase by registered supplier from unregistered supplier
  3. In case ITC is not claimed at the time of purchase of such goods than tax at the time of outward supply of such goods shall be paid on value addition only, ignoring negative value addition, if any
  4. Special value considerations are applicable in case second hand goods are taken from loan defaulters.