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

Input tax credit reversal for sale of capital goods requires computing ineligible credit under applicable reversal rules; cess may apply.
Disposal of capital goods on which input tax credit including Compensation Cess was availed requires recalculation and reversal of ineligible credit under the CGST reversal framework; both the capital-goods disposal formula and the periodic allocation methodology must be applied where relevant, and taxpayers may compute reversals under both approaches and adopt the more favourable figure. Where cess credit was claimed, cess consequences at the time of sale remain pertinent despite administrative exemptions for certain used vehicles.