ITC reversal for Second hand plant and machinery purchased

[Ramanathan Seshan]

Dear Experts,

Hope this message finds you well.

I am seeking clarification regarding the application of 18(6) in the context of a transaction between Company A and Company B. Here’s the scenario:

Company A purchases machinery from Company B and which had been used by Company B for three years. At the time of sale, Company B reversed the Input Tax Credit (ITC) since it had availed it during the time of purchasing the machinery.

After Company A purchased the machinery, it availed and utilized the ITC.

Subsequently sold the asset after two years at a 5% margin on the book value as of the date of sale.

With reference to the above, I would like to understand the following:

a) Would the 18(6) reversal be applicable in this case?

Best Regards,

S Ram

[Shilpi Jain]

Yes 18(6) will apply as the time of 5 years is from the date of invoice. Though pls note that 18(6) is not a reversal provision but a provision to ascertain tax liability in case of sale of capital goods on which ITC is taken

[Ramanathan Seshan]

Thanks Shilpi mam

AI Summary

Section 18(6) GST confirms tax liability on sale of capital goods after ITC claimed, five-year invoice period applies. The operative rule is that Section 18(6) applies to ascertain tax liability on sale of capital goods on which ITC was taken; the temporal test is measured from the date of the invoice, and the provision functions to determine tax liability on such sales rather than serving merely as an ITC reversal mechanism.