Query Regarding Reversal of ITC on Capital Goods if business is closed within 5 years of Purchase of Capital Goods.

[MANISH MATA]

Hello Dear Sir / Madam,

My query is I had recently purchased a machinery for business purpose and availed ITC worth ₹ 28000. But now after 11 months of purchase, I closed my business. So will there be any impact on ITC already availed ? Will i have to make any reversal of ITC already taken ?

Thanks in Advance.

[Rajagopalan Ranganathan]

Sir,

If you sell the machinery to a prospective buyer, you have to pay CGST and SGST or IGST on the transaction value of the machinery. For payment of tax you can utilize the credit available in your account. If still some amount of credit is available with you the same would lapse. But you have not mentioned about surrendering your registration certificate. Till you surrender your registration certificate you can keep the credit. It will lapse only on cancellation of your registration certificate by the Department.

[Rajendra Prasad]

Dear Mr Manish,

You have to reverse the PROPORTIONATE ITC ...

1. The provisions will apply only if you cancel the registration.

2. If you sell the Machinery before 5 years or cancel your registration before 5 years , you have to reverse the ITC by taking the life of the machinery as 5 years.

3. Please see Rule 44 for complete details.

[Ganeshan Kalyani]

I agree with the reply of Sri Rajagopalan Sir.

AI Summary

Reversal of Input Tax Credit on capital goods if business closes within 11 months of purchase; see Rule 44. A participant inquired about the reversal of Input Tax Credit (ITC) on capital goods after closing a business within 11 months of purchasing machinery. Three responses were provided. One advised that if the machinery is sold, taxes must be paid, and any remaining credit will lapse upon registration cancellation. Another response emphasized reversing proportionate ITC if the registration is canceled or machinery is sold within five years, referencing Rule 44 for details. The third respondent agreed with the first reply, supporting the explanation provided.