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.

[Sadanand Bulbule]

I welcome the reply. 

AI Summary

GST Compensation Cess on sale of capital goods: does Section 18(6) read with Rule 44(6) apply? A query in a GST discussion forum concerns the treatment of GST Compensation Cess on sale of capital goods where cess input tax credit was availed. The issue is whether cess liability must be computed by proportionate reversal based on remaining useful life under Section 18(6) of the CGST Act read with Rule 44(6), or only on the transaction value of the outward supply. One participant opines that Section 18(6) does not apply to Compensation Cess, so no reversal is required and cess, if applicable, is payable only on transaction value. Another participant contends that Section 18(6) applies to Compensation Cess and liability equals the higher of cess on transaction value or proportionate reversal.