Capital goods purchase for exempted unit and sold out

[Vinod Maheswari]

I have purchase some capital goods by paying GST on it. As I am selling goods which are exempted under GST so I have not taken any input against this. I am registered in GST and paying GST of some taxable turnover.

After 3 years I have sold out this, Now my question is whether I have to charge GST on these capital goods, if yes then its not double taxation or can I availed input credit on the same now.

[Yash Jain]

Dear Sir,

As your finished prodcuts was exempted from Tax and simultaneously you were not allowed ITC, hence it is presumed that "ITC" would have formed part of your cost of Goods, on which you must have marked up profit and sold them.

So how can we term it double taxation, when the tax component as being charged at your end was recovered.

Yes, you have to pay GST on capital Goods.

Comments from other members highly solicited

[Vinod Maheswari]

Dear Mr Jain.

If I have not taken any input credit on capital goods and tax become my purchase cost than if I have any w.d.v a value in books for that capital goods than that W.d.v value is inclusive of tax . Even in GST life of capital goods is 60 months so how can we say that all Tax is consumed. So if suppose I sold out that capital goods after 3 yrs than first I have inbuilt taxes in my cost for which I can’t take input( as section 18 says if exempted goods become taxable than also input can be taken only when invoice is not older than 12 months). That’s the reason i m calling it double taxation on that w d v value

please also note that in case of vehicle under HSN code 8703 Govt has given a provision that if we any person sold such capital goods and not taken any input credit than he has to pay tax only if he is selling that capital goods for more than w d v value.

so my query is whether above provision is applicable for all capital goods (where input is not taken) or not.

[VaibhavKumar Jain]

The query may be explained through below example -

Cost of capital goods say ₹ 1000/-, amount of GST say @ 18% i.e. Rs. 180/- and the capital goods is used for exclusively exempt supplies, hence not availed any ITC. Let say, after a period of one year (i.e used for 4 quarters), the same capital goods is supplied.

On the above scenario, GST liability shall be higher of below -

(a) GST @ 18% on transaction value; or

(b) Amount of GST as reduced by 20% [i.e. ₹ 180 - (180 * 20%)] amounting to ₹ 144/-

Here, the selling dealer (supplier of old capital goods) shall be entitled to take ITC of ₹ 144/- as the goods is supplied even if used for own use for a period of one year.

In the above example, if the goods shall be supplied at ₹ 900/-, then amount of GST liability @ 18% on transaction value shall be ₹ 162/- (i.e. being the higher of ₹ 144/-). And the net GST liability shall be Rs. 18/- after utilizing ITC of ₹ 144/-.

[Vinod Maheswari]

Dear Mr. Vaibhav

In case if I am supplying it after 1 Year (12Months) then its ok I can take input credit as per section 18 1(d) read with section 18(2). but what if I am supplying such capital goods after 15 months or after 60 months.

As per section 18 1(d) I can avail input credit on capital goods which first used in exempted supply but late on when I want to sold it, it become taxable supply as per section 7. but section 18 (2) restrict to take such input if only Invoice are only 12 months old so if I am selling such capital goods after more than 12 months then how can I can't avail Input by restriction of section 18 (2)

The example given by you is based on section 18 (6) which is applicable only if I have availed any input credit.

The main problem is that because of restriction provided in section 18(2) if my capital goods are older than 12 months than how can I take input credit for those Capital goods for which I have not taken any credit at the time of Original Purchase.

Please comments.

AI Summary

GST on resale of used capital goods: valuation and input credit windows determine recurring tax liability on disposal. Whether GST applies on resale of capital goods originally used for exempt supplies without availing input credit, noting that tax liability on resale is the higher of tax on transaction value or tax computed after applying a prescribed reduction to the original tax; a reduced portion of the original tax may be taken as input if the conditions and temporal window for input recognition are met, while invoice-age restrictions and written down value accounting can prevent recoupment, and certain vehicle resale provisions treat sales above book value differently.