GST Implication on transfer of Capital Asset.
DEFINITION:-
Goods:- As per the Section 2(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Capital Goods:- As per the Section 2(19) “capital goods” means goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
From the above definitions it is understood that all the Capital Goods shall be a "Goods" but all the Goods shall not be a "Capital Goods".
Business Assets:- The term business asset is not define in the GST law but Business Asset is of very wide connotation. It includes every asset of the business including capital goods, finished goods etc.
First we will understand the provision related to "Scope of Supply".
(1) For the purposes of this Act, the expression “supply” includes,
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
(b) import of services for a consideration whether or not in the course or furtherance of business and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration.
The subject matter of GST Implication on transfer of Capital Asset shall be discuss based on whether input tax credit on capital goods was availed or not.
INPUT TAX CREDIT (ITC) AVAILED:-
Definition of Supply includes transactions or activities contained in Schedule I, one of them is as under,
"Permanent transfer or disposal of business assets where input tax credit has been availed on such assets."
It is important to recall that the activities mentioned in Schedule I and such activities are considered as supply even if the activities are carried out without consideration.
"Hence, any permanent transfer of capital assets on which ITC has been availed shall be considered as supply even if the same is carried out without any consideration."
INPUT TAX CREDIT (ITC) NOT AVAILED:-
a) GST implications on capital goods when input tax credit was not availed depend upon the fact whether consideration was charged for the transfer of the goods or not. Where consideration is involved, the transaction shall fall within the ambit of supply and hence, GST shall be chargeable.
b) The case where no consideration is involved must be discussed in the light of the amendment to the definition of Supply (Section 7 of the Act) made by the CGST Amendment Act, 2018.
Prior to amendment definition of supply includes activities or transaction covered in Schedule II, one of them is as under,
"Transfer of business assets where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person."
A bare reading of the above gives an interpretation that, for invocation of the above provisions, three conditions must be satisfied:-
a) Any goods forming a part of business assets.
b) Transferred or disposed off so as no longer to form part of business assets.
c) By or under the directions of the person carrying on the business
Thus transfer of capital goods shall fall under the scope of supply by above provision irrespective of involvement of consideration.
But CGST Amendment Act, 2018 omitted the above clause from the definition of the scope of supply and state that Schedule II is relevant only for the purpose of classification of a supply into a supply of good or a supply of service.
For a transaction to be a supply, the requirement of consideration is a must except in the case of import of services and activities mentioned in Schedule I. Therefore, in the absence of consideration and where no ITC has been availed, sale of capital goods shall not be a supply in accordance with the provisions of Section 7 of the Act and hence, GST shall not be chargeable.
Conclusion:-
1) Prior to the amendment, if any transfer of capital assets was made under the direction of the person, the transaction was a supply under the provision of the Act, whether or not consideration was involved.
2) However, after the amendment, the requirement of consideration is must. Therefore, it would be right to conclude that where no ITC has been availed, the transfer of capital goods without consideration shall not be a supply and hence no GST should be chargeable. (If not covered in Schedule I).
Goods:- As per the Section 2(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Capital Goods:- As per the Section 2(19) “capital goods” means goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
From the above definitions it is understood that all the Capital Goods shall be a "Goods" but all the Goods shall not be a "Capital Goods".
Business Assets:- The term business asset is not define in the GST law but Business Asset is of very wide connotation. It includes every asset of the business including capital goods, finished goods etc.
First we will understand the provision related to "Scope of Supply".
(1) For the purposes of this Act, the expression “supply” includes,
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
(b) import of services for a consideration whether or not in the course or furtherance of business and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration.
The subject matter of GST Implication on transfer of Capital Asset shall be discuss based on whether input tax credit on capital goods was availed or not.
INPUT TAX CREDIT (ITC) AVAILED:-
Definition of Supply includes transactions or activities contained in Schedule I, one of them is as under,
"Permanent transfer or disposal of business assets where input tax credit has been availed on such assets."
It is important to recall that the activities mentioned in Schedule I and such activities are considered as supply even if the activities are carried out without consideration.
"Hence, any permanent transfer of capital assets on which ITC has been availed shall be considered as supply even if the same is carried out without any consideration."
INPUT TAX CREDIT (ITC) NOT AVAILED:-
a) GST implications on capital goods when input tax credit was not availed depend upon the fact whether consideration was charged for the transfer of the goods or not. Where consideration is involved, the transaction shall fall within the ambit of supply and hence, GST shall be chargeable.
b) The case where no consideration is involved must be discussed in the light of the amendment to the definition of Supply (Section 7 of the Act) made by the CGST Amendment Act, 2018.
Prior to amendment definition of supply includes activities or transaction covered in Schedule II, one of them is as under,
"Transfer of business assets where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person."
A bare reading of the above gives an interpretation that, for invocation of the above provisions, three conditions must be satisfied:-
a) Any goods forming a part of business assets.
b) Transferred or disposed off so as no longer to form part of business assets.
c) By or under the directions of the person carrying on the business
Thus transfer of capital goods shall fall under the scope of supply by above provision irrespective of involvement of consideration.
But CGST Amendment Act, 2018 omitted the above clause from the definition of the scope of supply and state that Schedule II is relevant only for the purpose of classification of a supply into a supply of good or a supply of service.
For a transaction to be a supply, the requirement of consideration is a must except in the case of import of services and activities mentioned in Schedule I. Therefore, in the absence of consideration and where no ITC has been availed, sale of capital goods shall not be a supply in accordance with the provisions of Section 7 of the Act and hence, GST shall not be chargeable.
Conclusion:-
1) Prior to the amendment, if any transfer of capital assets was made under the direction of the person, the transaction was a supply under the provision of the Act, whether or not consideration was involved.
2) However, after the amendment, the requirement of consideration is must. Therefore, it would be right to conclude that where no ITC has been availed, the transfer of capital goods without consideration shall not be a supply and hence no GST should be chargeable. (If not covered in Schedule I).
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