ITC Reversal on Tax rate reduced to 5% with No ITC

[BIJO SCARIA]

I purchased capital goods (say, in a hotel) when the room tariff was taxed at 18% with ITC available. Later, the GST rate on hotel rooms was reduced to 5%, but with the condition that no ITC shall be available. In this situation, am I required to reverse the ITC that I had already availed when the tax rate was 18% because capital goods used less than 5 years only?

[Sadanand Bulbule]

There is no requirement to reverse the ITC already availed on capital goods purchased when the output supply (hotel room tariff) was taxable at 18% with ITC benefit. The restriction of “no ITC” applies prospectively from the date the reduced rate (5%) is opted/comes into effect.

As per GST provisions, ITC law does not mandate reversal of credit already validly availed merely because of a subsequent change in rate structure. Reversal is required only in cases of exempt supplies or where the capital goods are shifted to exclusively exempted/non-taxable use (Section 18(4) of the CGST Act, Rule 43). In your case, the supply remains taxable (at 5%), hence no reversal of earlier availed ITC is warranted, even if the capital goods are within 5 years of use.

Thus, you may continue to retain the ITC already availed before the rate change

[Rajeev Khulbe]

APKI SUPPLY 5% WITHOUT ITC MAIN COVERED HO GAYI HAIN.NOW AGER APKE HOTEL MAIN KOI BHI ROOM 7500 SE EXCESS NAHIN HAIN, THEN APKO ITC REVERSE KERNE KI KOI NEED NAHIN HAIN BUT AGER APKE HOTEL MAIN ROOM CHARGES 7500 SE LESS AND  EXCESS HAIN THEN APKO AS PER RULE 42 APKO ITC REVERSE KERNA HOGA THROUGH 3B.

AI Summary

Input tax credit retention: validly availed ITC need not be reversed when tax rate is reduced and supplies stay taxable. A taxpayer who validly availed input tax credit on capital goods when supplies were taxable with ITC need not reverse that credit solely because the tax rate is subsequently reduced and prospectively made subject to a no ITC condition; reversal is required only where supplies become exempt or capital goods are diverted to exclusively exempt or non taxable use under the statutory reversal mechanisms.