GST on Sale of Machinery where ITC has not been availed

[Pradeep Singhi]

Sir,

A Private Ltd. Co. running a hospital purchased a machinery in GST regime & ITC was not availed on the same as output service (Healthcare service) is exempted.

Now, the machinery is sold by the Hospital to another Hospital (a Partnership Firm).

1. Whether GST is payable by the hospital while selling the Machinery?

2. If payable, then since the ITC was not taken earlier & hospital purchasing the machinery is also not eligible to avail ITC, whether it will tentamount to double taxation on these type of transactions?

3. Any case laws related to this type of transactions?

[Rajagopalan Ranganathan]

Sir,

There is no concept under GST Law that where the recipient is not eligible to take ITC then no gst is payable by the seller. Whenever goods/services are supplied the same is liable to payment of gst.

If the machinery is sold after use for some period, then gst is payable on the transaction value of the machinery sold.

[Padmanathan KV]

Agreed. GST will be payable on the transaction value.

[CA ShivKumarBhasin]

There is no doubt that GST is applicable (on the transaction value).

However, Double Taxation can be made a ground of defence as double levy of tax on the same goods is against the main objects of the GST law as laid down under “Statement of Objects and Reasons” to the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014.

Hon'ble SC has also affirmed in its various judgments that there cannot be double taxation on the same goods.

[Shilpi Jain]

All scenarios where there is blocking of credit or where credit is ineligible due to outward supplies being exempt, could lead to taxes being paid twice.

In fact, exemption to outward supply is one big reason for tax being paid more than once.

Say for example, a machinery is used to manufacture exempt goods by P1. These exempt goods are sold to a person P2 who manufactures taxable goods.

The value of the exempt goods will include the ITC not availed by P1. P2's cost of goods manufactured will also include the cost of goods purchased from P1. Finally P2 charges GST on the value of the ITC on machinery which was not eligible to P1!!

So you see, exemption sometimes or many times leads to or is the reason for the so called double taxation!!

[KASTURI SETHI]

Sh.Pradeep Singh Ji,

Pl. go through the following:-

Q9. In transport industry, old vehicles, old tyres, scrap material etc, on which no Input Tax Credit (ITC) has been taken, are disposed of after completion of their useful life. As a truck owner disposing of these goods, am I required to pay GST considering that no ITC has been taken at the time of their initial purchases? Would levy of tax in such cases not amount to double taxation, as tax has already been paid at the time of initial purchases?

Ans. Under Section 7 of the CGST Act, 2017 supply includes all forms of supply of goods such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Sale or disposal of old vehicles, old tyres and scrap material for a consideration would therefore attract GST regardless of whether ITC has been availed or not.

In this scenario, there is double taxation.

Definition of 'business' under Section 2(17) of the CGST Act is very very wide and it covers your situation under Section 7 (1) of the CGST Act.

Double taxation is neither the intention of Govt. nor the legislature.. So voice should be raised by the Trade and Industry.

Case law on this issue, if any, will be posted here.

[GUNASEKARAN K]

ITC not eligible on purchase of Machinery or Equipment to use exclusively for Health care services.

However you are liable to pay GST on sale of such Machinery or equipment after useful life or earlier.

AI Summary

Private Hospital Must Pay GST on Machinery Sale Despite ITC Ineligibility, Raising Double Taxation Concerns A private hospital sold machinery to another hospital without availing Input Tax Credit (ITC) since healthcare services are exempt from GST. The main question was whether GST should be paid on this sale. Respondents agreed that GST is payable on the transaction value, regardless of ITC eligibility. Concerns about double taxation were raised, as the machinery was initially purchased without ITC and sold without ITC eligibility for the buyer. It was noted that double taxation contradicts GST's objectives, but GST still applies to such transactions. The discussion highlighted the complexity of GST in exempt sectors.