Sale of company assets to employees upon resignation - GST impact

[Balaji Srinivasamurthy]

Respected experts,

Requesting your opinion the impact of GST on the below scenarios on transfer of business assets (depreciation is claimed for the basic value) to employees upon officially relieving from the organisation:

1. Sale of assets where ITC is claimed (on the taxable value), eg. laptops

2. Sale of assets where ITC is not claimed, eg. mobile phones

3. Sale of assets in both the above 1 and 2 scenarios when there is WDV value and same is recovered from the full and final settlement of the employee

4. Sale of assets in both the above 1 and 2 scenarios when there is no WDV value and same is not recovered from the full and final settlement of the employee.

Thank for your support

[Balaji Srinivasamurthy]

Respected experts, I have listed the below scenarios for which I humbly request your valuable opinion:

Asset No	Cost of the asset	Less: Depreciation	WDV	OMV	ITC availed by the company	Amount recovered from F&F	GST Rule/Act	GST Rate	Taxable Value	GST	Invoice Total
1	100000	100000	0	30000	No	0
2	100000	100000	0	30000	Yes	0
3	100000	100000	0	30000	No	20000
4	100000	100000	0	30000	Yes	20000
5	100000	50000	50000	30000	No	0
6	100000	50000	50000	30000	Yes	0
7	100000	50000	50000	30000	No	20000
8	100000	50000	50000	30000	Yes	20000

[Rajan Kumar and associates]

As per the Provisio to Para 2 of Schedule 1 of CGST Act, 2017 - Gift from Employer to Employee to the extend of 50,000/- is neither supply of goods nor supply of service

[Sadanand Bulbule]

Sale of company assets to employess is a supply under GST. If ITC was availed, GST is payable on Open Market Value [OMV] even if given free: if ITC not availed,GST applies only on the actual sale value, and free disposal is not taxable.

[KASTURI SETHI]

Dear Querist,

Pl. see whether your transaction is covered under Section 2 (17) (b) of CGST Act or not.  You can take a cue from the following case law pertaining to Sale Tax/Vat/CST Act. Pl. examine if this can help you. 

1995 (1) TMI 324 - BOMBAY HIGH COURT Morarji Brothers (Import & Export) Pvt. Ltd. Versus State of Maharashtra

AI TextQuick Glance (AI)

High Court: Used car sales by chemical manufacturer not taxable under Sales Tax Act. Fixed assets sales not included.

The High Court ruled that the sales of three used motor cars by the assessee, who was primarily in the business of manufacturing chemicals, were not taxable under the Bombay Sales Tax Act. The Court emphasized that these sales were not incidental or ancillary to the assessees main business activities. The Court also clarified that transactions involving fixed assets or discarded goods acquired during business operations cannot be considered as part of the taxable turnover. The decision reaffirmed the principle that only sales connected with or incidental to the business of selling goods are subject to taxation. 

[Sadanand Bulbule]

While welcoming the reply of Sirji, it is to be noted that the concept of supply under the GST Act is much wider than in the earlier tax regimes.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Yes, Sir. The scope of supply under GST Acts is wider than the earlier envisaged in CST/VAT Act. If ITC not taken, the situation is entirely different.

Old and used laptop etc. has already suffered duty/tax once. Will it not amount to double taxation. if the same goods are taxed again at the time of re-sale ?  My opinion is NOT FINAL. I have posted the case law to explore the possibility in this aspect.

Pl. opine for enrichment of my knowledge.

[Sadanand Bulbule]

Dear Sirji

With due respect, it is humbly submitted that the sweep of the term “supply” under the GST framework is deliberately kept wider than what was envisaged under the erstwhile CENVAT/ CST/VAT enactments. The legislative intent is clear — every subsequent transfer of goods or services, regardless of the fact that such goods may have borne tax in a pre-GST regime, constitutes a fresh taxable event under GST. In this backdrop, the re-sale of used assets such as laptops cannot be construed as “double taxation.” The earlier incidence of duty or VAT was under a distinct law and on a different taxable event. The GST levy is on a new supply under a new regime.

The doctrine against double taxation, as laid down by courts, operates within the same statute and not across two distinct legislative fields. At the same time, the statute provides a calibrated safeguard through Rule 32(5) of the CGST Rules, 2017, which enables levy only on the margin where no input tax credit has been availed. This mechanism reflects the legislative sensitivity to equity, ensuring that the taxpayer is not burdened disproportionately and the transaction is taxed only to the extent of actual value addition.

Viewed thus, the law achieves a judicious balance between its expansive scope of taxation and the need to avoid cascading. In my respectful view, therefore, levy of GST on re-sale of old and used goods is consistent with both the letter and spirit of the statute. Nevertheless, the jurisprudence under earlier indirect tax regimes remains a fertile ground to derive interpretative guidance, and your reference to case law in this regard is indeed an enriching contribution to the discourse.

[KASTURI SETHI]

Dear Sir Ji,

(i) There is no question mark on your interpretation, analysis and style of expression.

(ii) If ITC has not been availed and the goods have suffered tax once, tax cannot be demanded again on the SAME goods.

(iii) If tax is demanded again on the same goods as per definition of "supply" in CGST Act, the definition needs to be amended.

(iv) GST Acts are VAT based.

[Ganeshan Kalyani]

Sale of laptop, mobile phone attract GST on the sale value. There is no calculation as like sale of car. 

[Shilpi Jain]

Sale of assets will be liable to GST basis sale value or the value as per section 18(6) [considering 5 years as useful life and identifying amount of ITC to be paid back]

 

[Balaji Srinivasamurthy]

Dear experts,

Even I had the same concern for double taxation impact on the second-hand sales and which is why I raised this concern to understand in detail. As usual, my humble thanks for your detailed replies!

Application of the provisions laid down under Sec-7, Sch-I, Sch-II, Rule-28, Rule-32 and Sec-18(4) are completely perplexing to arrive at the quantum of GST to be paid for transfer of business assets to employees with eight probabilities (which I have tabulated in Point 2) for which I humbly request you may provide scenario wise clarification:

1. Assets partially/ completely depreciated,

2. ITC availed/ not availed by the company, and 

3. Recovery made/ not made from the employees for the WDV

AI Summary

GST on transfer of business assets: valuation depends on whether input tax credit was claimed, affecting taxable value.
When an employer transfers company assets to departing employees, GST treatment hinges on whether input tax credit was claimed: if ITC was availed, taxable value is the open market value even for discounted or free transfers; if ITC was not availed, GST is limited to the actual consideration received. Depreciation and written down value affect the computation but do not change these valuation principles. Applicable rules include valuation provisions, margin taxation where no ITC was claimed, and mechanisms for reversal or adjustment of previously availed input tax credit, with a narrow exemption for nominal employer gifts.