re GST on capital goods

[Madhavan iyengar]

Company A sent certain capital goods free of cost to company B ( both are not related parties) and has issued a invoice charging gst (since it is sent FOC without any consideration) the recipient B has taken credit and the recipient has only paid the gst amount to Company A

Query: whether Company B not required to reverse the ITC

[Nitesh Jain]

No Company B is not required to reverse the ITC since As per provisio to rule 37(1), the payment is deemed to have been paid.

Accordingly, No reversal required.

[SHARAD ANADA]

Supplier and recepient is not related party hence sch I of CGST Act is not applicable. And Provisio to rule 37 is apliapplic only for sch I cases. Provisio of rule 37 is reproduce here under Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16:

In your case invoice is made and you design transaction as supply with consideration but afterwards recepient fails to pay. In that case sec 16(2) Provisio 2 is applicable

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within aperiod of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added
to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

So in your case recepient is required to reverse ITC if he doesn't pay to recepient.

If supplier actually supply goods without consideration the supplier is not eligible for ITC on his input as per sec 17(5)(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

AI Summary

Input tax credit reversal: recipient may need to reverse ITC when payment to supplier for supplied goods is not made. Supplier issued invoice for capital goods supplied free of cost; one view invokes the proviso to rule 37 to deem value paid and avoid reversal of recipient ITC, while the alternate view applies the proviso to the second proviso of section 16(2), requiring the recipient to add the ITC to output liability if it fails to pay the supplier within the prescribed period, and notes supplier ineligibility for ITC on gifts or free supplies.