Requirement of CESS reversal on sale of capital goods

[vaibhav agrawal]

In the case of sale of fixed assets (capital goods) on which Compensation Cess has been availed, whether the Compensation Cess payable is required to be determined in accordance with the provisions of Section 18(6) of the CGST Act read with Rule 44(6) of the CGST Rules (i.e., proportionate reversal based on the remaining useful life of five years), or whether Compensation Cess is payable only on the transaction value of the outward supply?

[Sadanand Bulbule]

In my opinion, the provisions of Section 18[6] of the CGST Act do not apply to Compensation Cess. Therefore reversal of Cess is not required. However if the supply of capital goods attracts Cess, then it is payable on the transaction value.

[Ryan Vaz]

Issue Summary
Whether, on sale of capital goods on which GST Compensation Cess ITC was availed, the cess payable is to be computed on transaction value or by proportionate reversal under Section 18(6) read with Rule 44(6).

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Applicable Law / Provisions

• Section 18(6), CGST Act, 2017 – Treatment of ITC on supply of capital goods

• Rule 44(6), CGST Rules, 2017 – Manner of reversal (useful life of 5 years)

• Section 11(2), GST (Compensation to States) Act, 2017 – Application of CGST Act provisions to Compensation Cess

• CBIC FAQs on GST Compensation Cess (principle-based clarification)

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Short Practical Answer
On sale of capital goods on which Compensation Cess ITC has been availed, Compensation Cess payable shall be the higher of:

1. Cess on transaction value, or

2. Cess attributable to remaining useful life, calculated proportionately as per Section 18(6) read with Rule 44(6).

The Section 18(6) mechanism applies equally to Compensation Cess.

[KASTURI SETHI]

Comprehensive and perfect reply by Sh. Ryan Vaz, Sir 

[Sadanand Bulbule]

I welcome the reply. 

[Shilpi Jain]

In case you have not availed credit of compensation cess at the time of purchase of the fixed asset then section 18(6) will not be applicable.

AI Summary

Sale of capital goods: compensation cess payable is the higher of transaction-value cess or proportionate reversal based on remaining useful life. Where Compensation Cess ITC was availed on capital goods, cess payable on their sale is the higher of cess on the transaction value or the proportionate cess attributable to remaining useful life calculated under Section 18(6) read with Rule 44(6); if no cess credit was availed at purchase, the proportionate reversal mechanism does not apply and cess liability is limited to the transaction value.