Sale of Capital Goods (Business Assets)
In this article we discuss about the GST impact on Sale of Capital
Goods (i.e. Business Assets).
First we discussed about the Definition of Capital Goods.
1)
Goods should be capitalised in the Books of
Accounts. (It can by anything whether Fixed Assets or Current Assets).
2)
ITC Should be availed on such goods.
3)
Such goods should be used for furtherance of
business.
1) As per the Schedule I of CGST Act 2017, Permanent transfer or disposal of business assets where input tax credit has been availed on such assets considered as a supply even if such transaction is without Consideration.
For the Purpose of above Provision three
Conditions to be satisfied:-
1) Permanent
transfer or disposal.
2) Business
assets.
3) ITC has
been availed on such assets.
2) As per the Schedule II of CGST Act 2017, 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, such transfer or disposal is a supply of goods by the person.
For the Purpose of above Provision three
Conditions to be satisfied:-
1) Any goods
forming part of the assets of a business.
2) Transferred
or disposed of so as no longer to form part of those assets.
3) By or under the directions of the person carrying on the business.
However entry in Schedule II does not matter
whether,
1) Transaction
is done for Consideration or Without Consideration.
2) ITC has
been availed on those goods or not.
3) Goods belongs to pre GST era or Post GST era.
Combined reading of above Provisions we can
conclude that GST will be applicable on transfer of Capital Assets or Business
Assets even if,
1)
Such Transfer is for Consideration or Without
Consideration.
2)
ITC on such Goods has been availed or not.
3)
Such Goods are belongs to pre GST era or Post
GST era.
4)
Whether such transfer is for Intentional (i.e.
Sale, transfer, Gift etc.) Or
Unintentional (i.e. Loss, Damage due to fire or natural calamities.)
However If Capital goods are loss or damage
due to fire or natural calamities or beyond the control of human being and ITC
on those goods not availed then such loss or damage does not fall within ambit
of supply.
Value should be HIGHER of,
1)
Section 18(6) of CGST Act 2017, {Read with
rule 44(6)}
2)
Transaction value as determined under section
15 of CGST Act 2017.
A) Section 18(6) of
CGST Act 2017, {Read with rule 44(6)}:-
Section 18(6) of
CGST Act 2017:-
In case of supply of capital goods or
plant and machinery, on which input tax credit has been taken, the registered
person shall pay an amount equal to the input tax credit taken on the said
capital goods or plant and machinery reduced by 5% (Rule 44) for every quarter
or part thereof from the date of the issue of the invoice for such goods (As
per Rule 40)
Manner of reversal
of credit under Rule 44:-
Capital goods held in stock, the input
tax credit involved in the remaining useful life in months shall be computed on
pro-rata basis, taking the useful life as FIVE
years.
Illustration:-
Capital goods
have been in use for 4 years, 6 month and 15 days.
The useful
remaining life in months= 5 months ignoring a part of the month
Input tax credit
taken on such capital goods= C
Input tax credit
attributable to remaining useful life= C multiplied by 5/60
B) Transaction value
as determined under section 15 of CGST Act 2017.:-
The value of a taxable supply of
goods or services or both shall be the "TRANSACTION
VALUE".
Transaction Value:- It is a combination of three elements.
"Price
actually paid or payable for the supply (+) Supplier and the recipient of the
supply are not related (+) Price is the sole consideration for the supply"
Valuation in case of Transfer of Capital Goods
(Business Assets) in Following Scenario:-
A) ITC has been availed on Capital Goods:-
1)
Transaction
is for Consideration (Intentional Transfer Excluding Gift):-
i) Section
18(6) of CGST Act 2017, {Read with rule 44(6)}
OR
ii) Transaction
value as determined under section 15 of CGST Act 2017.
2)
Transaction
is without any Consideration (Including Intentional transaction (i.e. Gift) or
Unintentional transactions):-
i) Section
18(6) of CGST Act 2017, {Read with rule 44(6)}
B) ITC has not been availed on Capital Goods:-
1)
Transaction
is for Consideration (Intentional Transfer Excluding Gift):-
i) Transaction
value as determined under section 15 of CGST Act 2017.
2)
Transaction
is without any Consideration (Including Intentional transaction (i.e. Gift) or
Unintentional transactions):-
i)
In case of
Gift:- Value of supply will be as per Valuation.
ii)
In case of
Unintentional transactions:- It will not be treated as supply.
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