reversal on account of sale of asset

[X Y]

The taxpayer purchased Crane on which ITC (IGST) was availed on 25.08.2020 for 1.94 Lac. Now the same crane has being sold with in state on 22.06.2022 for Rs. 5.10 Lac where CGST-45900 and SGST-45900 is payable. The input (IGST) reversal 1.23 Lac (1.94*38/60) is due as per Rule 44(6). You are requested to advise how IGST reversal of input can be made when there is CGST and SGST payable on sale within state. Because higher of ITC reversal and tax payable is to be paid but here components of tax are different

[KASTURI SETHI]

Go through Section 18(6) of CGST Act which is as follows :-

(6) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay 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 prescribedorthe tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher :

Emphasis is laid on 'OR'.

[KASTURI SETHI]

You will pay the amount of Rs.1.23,000/- (CGST 61500+ SGST 61500/-) since the capital goods were sold within the State). No question of IGST.

[Amit Agrawal]

I agree with Shri Kasturi Sethi Ji!

I wish to add the followings:

Query talks about ITC reversal u/r 44 (6). While Rule 44 indeed have the heading 'Manner of reversal of credit under special circumstances', subject sub-rule 6 reads as under:

"The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to capital goods shall be determined in the same manner as specified in clause (b) of sub-rule (1) and the amount shall be determined separately for input tax credit of 3[central tax, State tax, Union territory tax and integrated tax]:

Provided that where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR-1."

Rule 2 (82) of the CGST Rules, 2017 reads as under:

"“output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis"

Reading Section 18 (6) (as reproduced in earlier post) with the Rule 44 (6) along-with proviso thereunder, I am of the view that amount payable is NOT 'Reversal of any ITC' but tax-liability against supply of capital goods.

This is so because heading of any section / rule - which is contrary to what is stated in underlying section / rule - does not come into picture for interpretation of section / rule when subject provisions under such headings are unambiguous & clear in nature.

In other words, due to wordings used in Section 18 (6) read with Rule 44 (6), amount calculated u/r 44 (6) is NOT 'Amount of ITC to be reversed' against the subject transaction under discussion here but same is 'Tax payable' against outward supply of capital goods.

Consequently, you need not show this amount as 'ITC reversed' while filing GSTR-3B but same should be shown as tax charged & paid while raising tax-invoice as outward supply' and reporting it in Form GSTR-1.

HOW THIS MATTERS:

All this also means that buyer will also be eligible to avail ITC against taxes so charged by you and thereby, there will not be any loss to the person selling such goods.

All above are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Yes. I agree with the views of Sh.Amit Agrawal, Sir.

Section 18(6) of CGST Act is to be read with Rule 44(6) of CGST Rules. Proviso to Rule 44(6) talks of GSTR-1 which is as under :-

"Provided that where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR-1*."

Needless to say Form GSTR-1 is meant outward supplies of goods & services.

Well understood, interpreted, analyzed and explained by Sh.Amit Agrawal, Sir.

[Amit Agrawal]

Thank you very much, Shri Kasturi Sethi Ji, for your kind words!

[KASTURI SETHI]

Dear Sir, You have xrayed each and every word in the Act and Rules.

AI Summary

Tax liability on sale of capital goods: charge and report output tax when adjustment exceeds transaction value tax. Where capital goods sold had earlier attracted input tax credit, the seller must pay whichever is higher: the prescribed capital goods adjustment or the tax on the transaction value; if the calculated amount exceeds tax on transaction value it constitutes output tax liability and must be charged, invoiced and reported as outward tax (GSTR 1) rather than shown as an ITC reversal in inward returns, enabling the buyer to claim ITC on taxes so charged.