GST on Capital Goods

[CARajnikant Kalsariya]

My Capital Goods (Machinery) lost in Fire, My Reversible of GST on unused life of Machinery is less than tax on Scrap Transaction Value. is it true i m liable to pay tax only on scrap transaction value? not liable to reverse input of unused life of machinery?

[Rajagopalan Ranganathan]

Sir,

In my opinion, if the input credit to be reversed is higher than the tax payable on scrap value then you have to reverse the remaining portion of the credit available in your electronic credit ledger.

[Amit Agrawal]

As concerned capital goods are used for some period and then turned into 'scrap' (due to fire), blockage of ITC u/s 17 (5) (h) of the CGST Act, 2017 is not applicable in my view.

As concerned goods are no longer supplied as 'capital goods' (as it has lost its identity as 'capital goods' due to fire) but supplied as 'scrap', situation does not seem to be directly covered under main provision of section 18 (6).

While it is true that proviso u/s 18 (6) cannot be go beyond main provision, it is also true that all proviso needs to read harmoniously and any interpretation which makes entire proviso redundant should be avoided. And said proviso provides relaxation only for 'refractory bricks, moulds and dies, jigs and fixtures' and not for any other capital goods.

Presuming that subject capital goods are not 'refractory bricks, moulds and dies, jigs and fixtures', I hold a view that querist needs to pay to pay gst as per main provision of Section 18 (6) read with Rule 44 of the CGST Act, 2017 (i.e. an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher).

Recipient / Buyer of such scrap will be entitle to avail ITC against whatever GST is charged (i.e. as per calculations of Section 18 (6)) by the supplier.

All above are my personal views and same should not be taken as professional advice / suggestion.

[Amit Agrawal]

In above post, Please read as ' .....Rule 44 of the CGST Rules, 2017 (& not Rule 44 of the CGST Act, 2017). Apology for the inconvenience!

[KASTURI SETHI]

Emphasis is to be laid on whichever is higher (I agree with Sh.Amit Agrawal, Sir)

An illustration

Suppose capital goods (machinery) was purchased for ₹ 12,00,000/- and Rate of tax was 18%. So credit of ₹ 2,16,000/- was taken. Supposing machinery was used for two years (8 quarters). Entitlement to retain credit @5% per quarter under Rule 40(2) is ₹ 86,400/- i.e. 40% of 2,16,000/-. Balance of credit to be reversed is ₹ 1,29,600/-

HYPOTHETICAL OPTIONS

(i) Now suppose scrap of capital goods is sold at ₹ 2,00,000/- attracting rate of tax is 18% and tax is ₹ 36,000/-. Whichever is higher is to be paid/reversed i.e. 1,29,000/-

(ii) If the said scrap is sold for ₹ 8,00,000/- (transaction value), tax @18% works out to ₹ 1,44,000/-. Then the assessee will pay total GST amounting to ₹ 1,44,000/- (whichever is higher).

[Shilpi Jain]

Pls take note of an important aspect that the useful life of asset under gst is 5 years. So if ur asset is more than 5 years old then only tax on scrap needs to be paid and balance ITC value need not be considered.

AI Summary

GST reversal on capital goods: reverse unused input tax credit or pay tax on scrap transaction value, whichever is higher.
The supplier must compare the reversal of input tax credit attributable to unused life of capital goods with the GST on the transaction value of the goods sold as scrap and pay whichever is higher; relaxations in a proviso apply only to specified items, and recipients of scrap may claim input tax credit for GST charged.