Sale of Old plant & Machinery on which ITC Taken earlier-Rule 40 or Rule 44

[ROHIT GOEL]

Hi Sir,

As per sec 18(6) of CGST Act 2017, when capital goods on which ITC has been taken are sold, then the assessee should pay:

a) ITC taken earlier after reduction of prescribed percentage points OR

b) tax on transaction value on sale

whichever is higher.

Further as per Rule 40(2) of CGST Rules:

'(2) The amount of credit in the case of supply of capital goods or plant and machinery, for the purposes of sub-section (6) of section 18, shall be calculated by reducing the input tax on the said goods at the rate of five percentage points for every quarter or part thereof from the date of the issue of the invoice for such goods.'

However, Rule 44 also states that:

'(1) The amount of input tax credit relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock shall, for the purposes of sub-section (4) of section 18 or sub-section (5) of section 29, be determined in the following manner, namely,-

........(b) for capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.

Illustration:

Capital goods have been in use for 4 years, 6 month and 15 days.

The useful remaining life in months= 5 months ignoring a part of the month

Input tax credit taken on such capital goods= C

Input tax credit attributable to remaining useful life= C multiplied by 5/60

(6) The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to capital goods shall be determined in the same manner as specified in clause (b) of subrule (1) and the amount shall be determined separately for input tax credit of ³[central tax, State tax, Union territory tax and integrated tax]'

My query is which Rule is to be followed in such case? Whether the credit to be reversed or paid will be determined as 5% per quarter or on the basis of useful life of 60 months since there will be differences in both of the two methods?

AI Summary

Debate on GST forum: Which rule applies for ITC reversal on sold capital goods, Rule 40(2) or Rule 44? A discussion on the Goods and Services Tax (GST) forum addresses the sale of capital goods on which Input Tax Credit (ITC) was previously claimed. The query seeks clarity on whether Rule 40(2) or Rule 44 of the CGST Rules applies when determining the ITC to be reversed or paid upon sale. Rule 40(2) pertains to Section 18(6) and suggests a quarterly reduction, while Rule 44 involves a pro-rata calculation based on a 60-month useful life. One participant argues Rule 40(2) is applicable, while another points out that Rule 44 also prescribes a method for Section 18(6), causing confusion.