Cess to be considered in the time of sale of capital goods

[vaibhav agrawal]

A) If an authorised dealer sells a demo car on which input tax credit (including Compensation Cess) was availed, then at the time of sale under Section 18(6), should the credit availed under Cess be computed as per Rule 44, or should Cess be charged directly on the value of supply?

B) Both Rule 40(2) and Rule 44(6) deals with determination of remaining input tax credit at the time of supply of capital goods. In such a case, which rule is applicable?

[Rajan Kumar and associates]

Sale of Capital Asset used less than 5 years, in this case ITC has to be reversed as per Sec. 18(6) of the CGST Act, 2017 read with Rule 44(1)b of the CGST Rules, 2017. Rule 44(6) of the CGST Rules, 2017 also says ITC has to be reversed as per Rule 44(1)b of the CGST Act, 2017.  ITC available has to be calculated as per Rule 40(2) of the CGST Rules, 2017. Hence all the above rules are applicable.

We have to calculate Ineligible ITC (ITC to be reversed) as per Rule 44(1)b & Rule 40(2) of the CGST Act, 2017. Since we may got 2 different figures (ITC to be reversed), we may reverse whichever is beneficial to us. This is my view.

[Shilpi Jain]

Cess is exempt on sale of old and used motor vehicle -Notification 1/2018-Cess 

[Rajan Kumar and associates]

No mam... In this case, ITC has been already availed. Hence cess is applicable.

AI Summary

Whether cess on demo car sale must be computed under Rule 44 with Section 18(6) or charged on supply value An authorised dealer's sale of a demo car on which input tax credit (including compensation cess) was claimed raises whether cess must be computed via Rule 44 at the time of supply under Section 18(6) or charged on the supply value. Respondents note Section 18(6) and Rule 44(1)(b) require reversal of ITC for capital goods held under five years, while Rule 40(2) is used to calculate ITC attributable to business use; both provisions apply and may yield differing reversal amounts. One view suggests reversing the lesser (beneficial) amount; another contends cess remains payable where ITC was earlier availed despite notifications exempting cess on used vehicles.