Transfer of machinery between deemed distinct person.

[Kanishk Manglik]

Respected faculty,

i have encountered a small issue regarding transfer of machinery between deemed distinct persons. I have a machinery in my Delhi factory and i want to sell it. I have no ITC available in my Delhi GST no while i have a sufficient ITC amount in my Noida GST no.

Query 1 : Now i was wondering if i could transfer the machinery from my Delhi unit to Noida unit at a nominal value of say 1 Lakh taking advantage of Rule 28 under GST act as both the units are under GST and invoice value can be market value. Later on i can sell it at market value say 25 L and avail the benefit of GST input available in my Noida GST no to pay the liability.

Query 2 : Will it effect depreciation and any other provision of income tax .

Hope i am able to convey the query properly.

Thank You

[Rajagopalan Ranganathan]

Sir,

You have to pay gst on the value adopted by you for transferring the machinery from the Delhi unit to the Noida unit. The gst paid by the Delhi unit can be availed as credit by the Noida unit.

When the Noida unit sells the machinery to an unrelated third party it can pay gst on transaction value using the ITC available in its electronic credit ledger.

As far as depreciation under Income Tax Act since Noida unit avails the credit of gst paid by the Delhi unit Noida unit cannot claim depreciation the tax component which is availed as credit. If you claim depreciation on the tax component you have to reverse the credit taken along with interest.

[Shilpi Jain]

As far as gst is concerned u can do what you have mentioned I.e. taking advantage if rule 28.

AI Summary

GST on intra entity transfers: pay tax on the adopted transfer value; recipient may claim ITC and use it on resale. Transfer between units treated as deemed distinct persons attracts GST on the adopted transfer value; Rule 28 may be used to determine market/transaction value. The transferring unit pays GST, and the receiving unit can avail that GST as input tax credit and use it when selling to an unrelated third party. For income tax, if the receiving unit avails ITC for the tax component, that tax cannot be included in the depreciable base; claiming depreciation on it requires reversal of the credit with interest.