People opting Margin Scheme often faces dilemma whether they can claim ITC on input services, corresponding expenses and capital goods?
As per Rule 32(5) of the CGST Rules, 2017, Valuation of Second Hand Goods –
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.
Provided that the purchase value of goods repossessed 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 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.
The same problem has been dealt by the Authority for Advance Ruling – Karnataka. It has recently passed ruling (Advance Ruling No. KAR ADRG 40/2022, date 27.10.2022) where the applicant has sought advance ruling in respect of whether the applicant who has opted for Margin Scheme can claim Input Tax Credit on the expenses like rent, advertisement expense, commission, professional expense and like other expenses? and whether the ITC is allowed to be claimed on Capital Goods for Applicants under Marginal Scheme?
The assesse under marginal scheme has been restricted to claim ITC on purchased goods which are for sale purpose. However, in the Rule 32(5), assesse has nowhere been restricted to claim ITC on input services and corresponding expense subject to assesse is comply all the condition mention under section 16 to 21 and rules 36 to 45 of the CGST Act and Rule, 2017.
Thus the applicant who is under Marginal Scheme can claim Input Tax Credit on expense like rent, advertisement expense, commission, professional expense, like other expenses and capital goods subject to section 16 to 21 and rules 36 to 45 of the CGST Act and Rule, 2017.
