Taxability of capital goods (machine) when no ITC availed?

[Rajat Gupta]

My client purchased a machine when he did not have any GST registration. Later on, after obtaining registration, he did not claim its ITC as well. Now he wants to sell the machine. Is he bound to charge tax on sale of machine or is there any exemption in this case?

[Sadanand Bulbule]

Your client has to charge GST on the sale price of the machine, as it is a supply by a registered person for a consideration. The fact that ITC was not claimed only means he does not have to worry about the ITC reversal calculation under Section 18(6), but he still has to pay the standard output GST on the  actual sale price.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

I agree with the views of Sadanand Bulbule Sir. A registered person is required to collect and pay tax when effects the sale of taxable goods.

[Ryan Vaz]

Section 7, CGST Act, 2017 – Sale of business assets is a supply if made in the course or furtherance of business.

Schedule I, Para 1 – Supplies between related/distinct persons without consideration (not relevant here but confirms that assets of business are taxable when supplied).

Section 22 & 24, CGST Act – Once registered, all taxable outward supplies must comply with GST levy.

Section 18(6), CGST Act – Applies when ITC is availed; requires reversal or tax on transaction value, whichever is higher. If no ITC was availed, this section does not impose any special adjustment, but GST on outward supply still applies.

Circular No. 44/18/2018-GST dated 02.05.2018 – ITC on goods held in stock/capital goods at the time of registration is optional and must be taken within the time limits of Section 18(1)(a).

Short Practical Answer

Yes — your client must charge GST on the sale of the machine once he is a registered person.

There is no exemption merely because (i) the machine was purchased before registration, or (ii) ITC was never claimed.

The transaction is a taxable supply of business assets by a registered person.

However, Section 18(6) does not apply because ITC was never taken—so GST is charged only on the transaction value, without any special reversal calculation.

[KASTURI SETHI]

Dear Querist,

Does your client want to sell machine as scrap or second hand capital goods (machinery) ? Pl. reply..

Section 18 (6) is meant for only a registered person who has availed ITC on capital goods or plant and machinery. In this scenario, ITC has not been taken. Hence not applicable.

Proviso to Section 18 (6) also cannot be applied here as this proviso specifically pertains to sale of scrap of refractory bricks, moulds and dies, jigs and fixtures (NOT other capital goods or plant and machinery).

[KASTURI SETHI]

In continuation to my above reply :-

Mention capital goods specifically. 

 

[Rajat Gupta]

Sir it is for sale as second hand capital goods

[KASTURI SETHI]

Sh.Rajat Gupta Ji,

Will you please elaborate your query ? It is too short to reply correctly. So many factors are involved, especially, focussing on non-taking ITC. The case can tilt in favour of your client.

Waiting for your response. To be continued.

[Shilpi Jain]

GST would be payable on the sale value if sold to an unrelated person.

However, if disposed off without any consideration - no further liability as it does not fall under schedule I

[KASTURI SETHI]

Tax cannot be charged twice on the same goods. HSN would remain same for second hand goods (NOT scrapped).

ITC has not been taken on the capital goods.

The registered person is not engaged in the business of trading of second hand goods.

Margin scheme not applicable.

Schedule-1 not applicable at all.

The CRUX is whether SUCH resale is covered in the definition and scope of supply or not ?

So the decision cannot be arrived at without full facts of the case.

[Padmanathan KV]

GST is payable on the sale consideration.

AI Summary

Sale of a secondhand machine by a registered person attracts GST on the sale consideration even if ITC was never claimed.
Sale of a machine by a registered person is a taxable outward supply and attracts GST on the sale consideration; lack of registration at acquisition or non claiming of ITC does not exempt the sale. The ITC reversal rule applies only where ITC was availed on capital goods and is not triggered if no ITC was taken. Disposals without consideration and particular factual contexts (scrap, secondhand trading, related party transfers) may alter applicability, but the basic obligation is output tax on transaction value.