Input Reversal on Capital Goods

[AdvMurari Kumar]

HI,

We have taken GST Input earlier on Capital Goods at the time of capitalization. Now as on 31st March 22 we discarded the same as the WDV was zero because the life was three years. as per GST rule the life of Capital goods was 5 Year. so it compelled to reverse rest input, after Input utilizing 5% per qtr for three years. is there any way to save that input.

[SOWMYA CA]

Sir, I don't understand how a capital asset is discarded merely because its wdv is zero. The answer to your question is to retain the asset for the full five year period to save input tax

[AdvMurari Kumar]

It is required due to some reason

thanks for your reply

[Ganeshan Kalyani]

ITC for balance year or GST on sale value whichever is higher need to be reversed or paid

[AdvMurari Kumar]

HI, thank for your valuable revert

Please suggest how to pay through 3B or DRC-01

[Shilpi Jain]

If it's of Mar '22 youn can either choose GSTR-3B or DRC-03. For the reason that even if paid in 3b it will get reported in GSTR-9 in part 5.

If done in DRC-03, will get reported in table 4.

[Shilpi Jain]

So either way reporting will happen in GSTR-9

[SHARAD ANADA]

As you mention in your query it is discarded.Does it mean you stop using it or discarded means Sale (Supply) or disposed off? if it is sale (Supply) then Sec 18(6) will apply. In my view If it not not supply then section 18(6) will not apply.

[AdvMurari Kumar]

Thanks Shilpi JI.

it is reversal of March 22.

Means we can report in other reversal column in GSTR-3B for Apr 22.

[Amit Agrawal]

Dear Querist,

I am not sure I have understood the context of your query. Can you please explain legal provisions under which you feel that you need to be reverse proportionate ITC? Thanks

[AdvMurari Kumar]

It is against rule 43 1(c)

[Amit Agrawal]

Rule 43 deals with a situation where concerned capital goods attract the provisions of sub-sections (1) and (2) of section 17 being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies.

From the facts shared by you in your query, I an not sure how these the provisions of sub-sections (1) and (2) of section 17 are applicable to you. Can you please elaborate? Thanks

[AdvMurari Kumar]

I Understand but section 43 1(c) says

the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A, being the amount of tax as reflected on the invoice, shall credit directly to the electronic credit ledger and the validity of the useful life of such goods shall extend upto five years from the date of the invoice for such goods:

Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, input tax in respect of such capital goods denoted as ‘A’ shall be credited to the electronic credit ledger subject to the condition that the ineligible credit attributable to the period during which such capital goods were covered by clause (a),denoted as ‘Tie’, shall be calculated at the rate of five percentage points for every quarter or part thereof and added to the output tax liability of the tax period in which such credit is claimed:

[Amit Agrawal]

As per my understanding of given facts in your query, you are not covered in situation described in Rule 43 (1) (c) including proviso thereunder. Accordingly, I am unable to understand why there is a need to reverse any ITC.

If I missed any factual aspects or you are thinking about any other applicable provisions / rules warranting such proportionate reversal of ITC, please let me know.

[Shilpi Jain]

Supply also includes disposal. In this scenario the asset though being said to be disposed, if done for free then a view can be taken that it is not a supply as no consideration. However, it will come into the ambit of sch I entry 1, where liability will exist even if no consideration, as it is a business asset

[Shilpi Jain]

The moment it is a supply, 18(6) gets attracted. It looks unfair under GST since, any asset has a useful life actually of say only 3 years then it is deemed that the credit in proportion to the remaining 2 years will have to be reversed!!

[Amit Agrawal]

The querist needs to clarify if concerned capital goods are only discarded (i.e. no more being used in business though goods are lying idle while WDV is zero as per books of accounts) or disposed off (i.e. goods are given to someone else free of cost, which is no longer part of physical assets held by the assessee) without any consideration.

AI Summary

Input tax reversal on capital goods requires proportionate reversal when GST useful life exceeds actual use or upon disposal.
Input tax credit on capital goods claimed on acquisition must be proportionately reversed when the GST-prescribed useful life exceeds actual use or where the asset is disposed of within that statutory period. Retaining the asset for the full GST useful life prevents reversal. If disposal amounts to a supply (including deemed supply under Schedule I), the special reversal provision applies and the ineligible credit attributable to the unexpired statutory life is added to output tax. The tax can be discharged via periodic return (GSTR-3B) or deposit form (DRC-03) and reported in the annual return (GSTR-9).