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In what could come as a relief to owners of old commercial vehicles, the Ministry of Road Transport and Highway has asked the GST Council to consider lowering the tax rate on replacement vehicles to 18 per cent from 28 per cent.
A positive decision will benefit around seven lakh CV owners, said a senior official in the Ministry.
Two components
The Ministry’s proposal to the GST Council comprises two components: First, either exempt the transaction related to the scrapping or levy 5 per cent GST under the Reverse Charge Mechanism. Second, prescribe a GST rate for the replacement vehicle.
Elaborating on the first proposal, the official told BusinessLine that, usually, it is the responsibility of the party scrapping the vehicle to pay the GST, but if the supplier is not registered and the transaction size exceeds ₹5,000, then the registered receiver has to pay the tax. As the mechanism of paying the tax is getting reversed, it is called Reverse Charge Mechanism.
On the second proposal, he said that since replacing vehicles will generate volumes, a lower rate will not affect the tax mop-up.
“We will ask the OEM (Original Equipment Manufacturer) to offer some special discount on such vehicles to ease the buyers’ burden,” the official associated with the proposal said.
Separately, the Ministry has circulated a Cabinet note on a scrapping policy for commercial vehicles.
“These two set of proposals — the Cabinet note and the plea to the GST Council — are mutually exclusive but aim to facilitate each other,” the official said. The rate-revision proposal will be taken up at the next meeting of the GST Council, while the Union Cabinet is expected to consider the scrappage policy proposal in a fortnight, the official added.
The policy will define ‘old vehicles’ for mandated scrapping. “Vehicles manufactured between 1990 and 2000 are likely to be brought under the ‘old vehicle’ category,” the official said while clarifying that all CVs produced during this period will not be required to be scrapped.
7 lakh vehicles to be hit
Based on the parameters such as usage and emission, over 7 lakh vehicles will have to be scrapped, which is 25 per cent of all vehicles produced during the period and still on road.
The policy is likely to become operational from April 1, 2020. It is also proposed to set up scrapping centres under the purview of the Steel Ministry.
The official said that, initially, the new policy will cover only commercial vehicles, but it could eventually include passenger vehicles. “A time-frame will be set to examine if old personal vehicles are fit to ply or not, then a call will be taken on including them under the mandatory scrapping policy,” he said.
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