PLANT & MACHINERY- INPUT TAX CREDIT. Section 17[5][d] Vs Section 18[6]

[Sadanand Bulbule]

Dear experts

The provision of Section 18[6] of the CGST Act reads asunder:

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 prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher:

Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.

Query:

Coming back to the retrospectively amended Section 17[5][d] governing the entitlement of ITC on Plant & Machinery, what is the significance and implication of Section 18[6] on such ITC availed under Section 17[5][d]? What the beneficiary of such ITC needs to do? Plz clarify.

[YAGAY andSUN]

Implications of Section 18(6) of the CGST Act on ITC Availment Under Amended Section 17(5)(d)

1. Context and Legal Background

Section 17(5)(d) of the CGST Act earlier disallowed input tax credit (ITC) on goods or services used for construction of immovable property, even if used in the course or furtherance of business. However, this restriction specifically excluded "plant and machinery" from its scope.

The Finance Act, 2023 amended Section 17(5)(d) with retrospective effect from 1st July 2017, to clarify that ITC on "plant and machinery" is allowed, even where the same is treated as immovable property. This amendment has effectively resolved a longstanding ambiguity that had led to litigation in several cases.

Section 18(6) of the CGST Act becomes relevant in this context, especially where ITC has been availed on such plant and machinery.

2. Overview of Section 18(6)

Section 18(6) mandates that when a registered person supplies capital goods or plant and machinery on which ITC has been availed, the person is required to pay GST equivalent to the higher of:

• The ITC availed, reduced by a prescribed percentage (5% per quarter or part thereof as per Rule 44(6)); or
• The GST on the transaction value of such capital goods or plant and machinery, calculated in accordance with Section 15 of the CGST Act.

This provision is essentially a mechanism to recover ITC where capital goods or plant and machinery are disposed of after use.

3. Significance of Section 18(6) in Light of the Retrospective Amendment to Section 17(5)(d)

The retrospective amendment to Section 17(5)(d) now permits ITC on plant and machinery used in the course or furtherance of business, even if such assets are of an immovable nature (subject to them meeting the definition of “plant and machinery”).

Where such ITC has been availed—whether at the time of acquisition or availed now due to the retrospective clarification—Section 18(6) becomes applicable at the time of sale or disposal of such capital goods or plant and machinery.

Hence, any registered person who has claimed ITC on such capital assets must apply the provisions of Section 18(6) at the time of their supply.

4. Action Points for the Taxpayer

In view of the above, a registered person who has availed ITC on plant and machinery (including on the basis of the retrospective amendment) must do the following:

1. Maintain proper documentation showing that ITC was availed on such plant and machinery.
2. At the time of sale or disposal of the asset:
   • Calculate the reduced input tax credit using the depreciation formula under Rule 44(6) (5% per quarter or part thereof from the date of invoice).
   • Determine the transaction value of the supply under Section 15 and compute GST on that value.
   • Pay the higher of the two amounts in the return for the period in which the supply is made (typically through GSTR-3B).
3. Retain records of such computation for audit or departmental scrutiny, as the application of Section 18(6) is closely monitored during assessments and audits.

5. Illustrative Example

Assume a business purchased plant and machinery on 1st August 2018 for ₹10,00,000 plus ₹1,80,000 GST. Initially, it did not avail ITC due to the restriction under the earlier version of Section 17(5)(d).

After the retrospective amendment, the business avails ITC of ₹1,80,000 in FY 2023–24.

If the machinery is sold in June 2025 for ₹4,00,000 plus applicable GST, then:

• Period of use = 28 months = 9 quarters
• Depreciation = 9 × 5% = 45%
• Reduced ITC = ₹1,80,000 – 45% = ₹99,000
• GST on transaction value = ₹4,00,000 × 18% = ₹72,000

Amount payable under Section 18(6) = ₹99,000, as it is higher than the GST on transaction value.

6. Conclusion

The retrospective amendment to Section 17(5)(d) brings welcome clarity and reaffirms the eligibility of ITC on plant and machinery. However, businesses availing such ITC must remain mindful of Section 18(6) obligations at the time of disposal of these assets.

The provision ensures that the benefit of ITC is proportionately reversed or recovered when capital goods or plant and machinery are sold. Proper computation, documentation, and timely reporting of such adjustments are essential to avoid interest or penalty exposure.

***

[YAGAY andSUN]

Below is a formal representation and detailed advisory note, formatted for internal circulation or submission to senior management, a tax committee, or potentially even a regulatory body like the CBIC or GST Council, depending on your objective.

[On the Letterhead of the Company or Advisory Firm]

To:

The Chairman

Goods and Services Tax Council

New Delhi

Cc:

The Member (GST Policy), CBIC

The Jurisdictional Commissioner of CGST

Subject: Representation on the Implication of Section 18(6) in Light of Retrospective Amendment to Section 17(5)(d) of the CGST Act, 2017

Respected Sir/Madam,

We write this representation to seek clarity and record our understanding on the operational impact of Section 18(6) of the CGST Act, 2017 in light of the retrospective amendment to Section 17(5)(d) brought in vide the Finance Act, 2023.

The amendment has significant implications for taxpayers in terms of input tax credit (ITC) management, accounting treatment, and reversal/payment obligations at the time of disposal of plant and machinery.

1. Background

Section 17(5)(d) of the CGST Act initially disallowed ITC on goods or services received for the construction of immovable property (other than plant and machinery) even when used in the course or furtherance of business.

Vide Finance Act, 2023, the language of Section 17(5)(d) was amended retrospectively with effect from 1st July 2017 to clarify that the restriction on ITC does not apply to “plant and machinery.”

This amendment provides relief to taxpayers by validating ITC claims on plant and machinery, even if capitalized as immovable assets, provided other conditions under Section 16 are satisfied.

2. Issue Requiring Clarification

While the retrospective amendment resolves the eligibility issue under Section 17(5)(d), the applicability of Section 18(6) in such cases requires clarity, especially in the following scenarios:

• Where a taxpayer could not originally avail ITC on plant and machinery due to the earlier understanding of Section 17(5)(d) and now wishes to avail ITC in light of the retrospective amendment.
• The manner and timing of reversal/payment of ITC under Section 18(6), especially where the plant and machinery is disposed of after several years.
• Whether any procedural relaxation or special mechanism is required for claiming such retrospectively available ITC, especially in view of Section 16(4) (time limit for availing ITC).

3. Legal Analysis and Interpretation

• Section 18(6) provides that where capital goods or plant and machinery on which ITC has been availed are supplied, the taxpayer must pay the higher of:

a) ITC reduced by prescribed percentage points (5% per quarter under Rule 44(6)), or

b) GST on transaction value under Section 15.

• The retrospective amendment to Section 17(5)(d) entitles taxpayers to ITC on plant and machinery with effect from 1st July 2017. Therefore, if ITC is claimed (now or earlier), Section 18(6) becomes applicable at the time of disposal of such assets.

4. Practical Impact

For businesses that have capitalized plant and machinery and now intend to claim ITC based on the retrospective change:

• ITC, once availed, will need to be tracked for reversal/payment as per Section 18(6) when such plant and machinery is sold or disposed.
• This will require calculation of deemed depreciation, comparison with GST on sale value, and payment of the higher amount through GSTR-3B.
• Proper documentation and reconciliation between books and GST returns becomes crucial to support such ITC claims and subsequent reversals.

5. Request for Clarification / Representation

In light of the above, we humbly request the following:

1. Clarificatory Circular to be issued by CBIC or the GST Council outlining:
   • The applicability of Section 18(6) in relation to ITC availed under the amended Section 17(5)(d).
   • Guidelines on availing such ITC now, in light of the retrospective change, especially considering the time limits under Section 16(4).
2. Transitional Mechanism for taxpayers:
   • To claim missed ITC on plant and machinery due to the earlier restrictive interpretation.
   • To reverse/pay the tax under Section 18(6) upon disposal, without inviting penal consequences.
3. Clarification on accounting treatment:
   • Whether capitalization of service components (such as design, engineering, consultancy) along with plant and machinery affects their classification for ITC and reversal under Rules 42/43 and Section 18(6).

6. Conclusion

We believe that issuance of a detailed clarification will bring certainty to taxpayers and reduce litigation. Such a move would also be in line with the principle of equity and the legislative intent behind the retrospective amendment to Section 17(5)(d).

We remain available to assist with any further inputs or clarifications required from the industry perspective.

Yours faithfully,

[Authorized Signatory]

[Name]

[Designation]

[Company/Firm Name]

[Contact Details]

 

[Sadanand Bulbule]

Dear Sir

Thanks for your excellent clarifications. Admittedly there is entitlement of ITC on “Plant and Machinery” under Section 17(5)(d) coupled with restrictions under Section 18(6) in the circumstances explained therein. The beneficiaries of such ITC have to be therefore cautious enough to take care of contingencies highlighted under Section 18 (6) of the Act. 

[YAGAY andSUN]

Amenable with you Sir.

[Sadanand Bulbule]

In a way, this post followed by the exemplary explanation, such of the taxpayers have to be very careful in utilising ITC on Plant & Machinery under Section 17[5][d] read with Section 18[6] in a highly calculated and calibrated manner to keep themselves in the safe zone. Hope this benefits the stakeholders in the large interest. Better compliance yields best rewards.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir,  Thought provoking question indeed. Full of logic.

Retrospective amendment to Section 17 (5) (d)does not disturb the contents of Section 18 (6) at all.

I do not hesitate to say that analytical and comprehensive reply supported  with   full of reason and logic by M/s. Yagay and  Suns has enriched my knowledge on the issue.

[KASTURI SETHI]

Dear Sir,

The basis of proportionate reversal of ITC at the time of disposal after use, is what amount of ITC stands already availed. Hence retrospective amendment to Section 17 (5) (d) does not come into play in this scenario.

 Your query is of detective mind.

[Sadanand Bulbule]

Dear experts

I am elated by your fabulous response for enriching all the stakeholders.

[Shilpi Jain]

There is no link between the retrospective amendment and 18(6). 

Also the query is vague without any factual aspects.

Even if credit is claimed, on sale the tax payable as per 18(6) will have to be evaluated. Section 18(6) is not a ITC reversal provision but a provision to ascertain the amount of tax to be paid on sale.

[Sadanand Bulbule]

Dear all

I make it clear that this is not at all a query, much less factual. Rather it is to bring more awareness among the stakeholders about LoC under the new provision of Section 17[5][d]. LoC means Line of Input Tax Credit-  both blocked & unblocked credit under Section 17[5][d].

[Sadanand Bulbule]

2025 (6) TMI 917 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - In Re: M/s. H-Energy Gateway Pvt. Ltd.

ligibility to avail ITC - GST paid on goods and services used for construction of Tie-in pipeline, for delivery of re-gasified LNG from FSRU to the National Grid - Tie-in Pipeline qualifies to be a “plant and machinery” as per explanation to Section 17 of the CGST Act, or “plant or machinery”? - applicability of restriction u/s 17 (5) (c) and 17 (5) (d) - 

Conclusion - Applicant is not entitled to avail the ITC of GST paid on goods and services used for construction of Tie-in Pipelines, from the FSRU to the National grid as per the provision laid out in section 17 (5) (c) and (5) (d) of the CGST Act, 2017, as amended by the Finance Act 2025.

[Sadanand Bulbule]

Dear all

Since the State Assemblies have yet to amend the SGST Acts bringing retrospective amendment to Section 17[5][d] with effect from 01/07/2017 on par with the retrospective amendment to Section 17[5][d] of the CGST Act to nullify the judgement of the Apex Court  rendered in Safari Retreat case, the taxpayers need to be extra cautious while utilising ITC on the subject issue. Likewise the authorities are supposed to be patient not to give effect to Section 17[5][d] of the CGST Act alone without corresponding amendment to the respective SGST Acts retrospectively by way of re-opening such cases.

This is for general information only.

AI Summary

Taxpayer seeks clarity on input tax credit for plant machinery under Section 17(5)(d) and Section 18(6) amid pending state amendments A taxpayer queries about the interaction between Section 17(5)(d) and Section 18(6) of the CGST Act regarding input tax credit on plant and machinery. The discussion highlights that while the CGST Act was retrospectively amended following the Safari Retreat case judgment, corresponding amendments to SGST Acts by state assemblies remain pending. This creates uncertainty for taxpayers claiming input tax credit on plant and machinery, as Section 18(6) requires payment of input tax credit taken when such capital goods are supplied. The respondent advises caution in utilizing such credits until state legislation aligns with central amendments, and suggests authorities should exercise patience in enforcement until corresponding state amendments are implemented retrospectively.