Used car dealers, under the GST margin scheme, are allowed to avail ITC (Input Tax Credit) on various inputs (goods and services), the Central Board of Indirect Taxes and Customs (CBIC) has clarified. It made it clear that lending services provided by NBFC under a co-lending arrangement will attract GST levy.
These two are among various other clarifications, issued through two circulars by CBIC based on the recommendation of GST Council. This scheme is a special valuation method that prevents double taxation by levying GST only on the profit margin (selling price minus purchase price) rather than the full transaction value.
The board said that representations were received to clarify whether the condition of non-availment of ITC for seeking concessional GST and Compensation Cess rate on supply of old and used motor vehicles under the margin scheme notifications is restricted only to the old and used motor vehicles or is applicable to all input goods and input services used in the course of the business in dealing with the said second-hand motor vehicles such as spares, repairs and maintenance services, technology services, rent, marketing and advertisement services, etc.
Based on the recommendations of the GST Council, CBIC clarified that the restriction on availment of ITC for availing benefit of concessional GST and Compensation Cess rate under the margin scheme notifications is not applicable in respect of ITC on inputs (other than the said old and used motor vehicles) and input services.
Accordingly, “suppliers of old and used motor vehicles, under the said GST margin scheme notifications, are allowed to avail ITC on various inputs (other than the said old and used motor vehicles) or input services such as spares, repair and maintenance services, technology services, rent, marketing and advertisement services, etc.,” the board said. Further the restriction on availment of ITC under the margin scheme notifications applies only on the tax paid on the procured second-hand vehicles.
In another circular, CBIC clarified on the taxability of services provided by Non-Banking Financial Companies (NBFCs) to banks under co-lending arrangements. Under the co-lending model, banks and NBFCs jointly extend credit to borrowers in a pre-agreed proportion, with the objective of combining the lower cost of funds of banks with the wider reach of NBFCs. The borrower is generally charged a blended rate of interest based on the respective lending rates of the participating regulated entities. As per the RBI Directions, NBFC provides ‘lending services’ to bank in a co-lending arrangement.
These services primarily involve undertaking activities such as customer sourcing, KYC, credit appraisal, underwriting, servicing, monitoring, collection of repayments and recovery. Since NBFC acts as primary interface with the borrower, NBFCs are in the best position to provide such services. According to the Reserve Bank of India, the regulated entities in such co-lending arrangements shall decide the objective criteria for determining the fees or charges payable for such services.
“The lending services provided by an NBFC to a bank under a co-lending arrangement are taxable under GST and the value of such services shall be the value specified in the contractual agreement entered into between the NBFC and the bank,” CBIC said.
