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GST on Sale/Transfer of Capital Assets?
Before going deep into the provision, one should know what is supply? Whether your sale of Goods falls under the supply definition? How much GST is required to be paid on such goods? Is there any exception to the rule?
What is supply under GST?
- a) All forms of supply of goods or service or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of Furtherance business;
- b) Import of service for a consideration whether or not in the course or furtherance of business;
- c) Activities specified in Schedule I, made or agreed to be made without a consideration; and
- d) The activities to be treated as supply of goods or service as referred to in Schedule II
What is covered under Schedule I?
- Permanent transfer or disposal of business assets where Input Tax Credit (ITC) has been availed on such assets.
In simple term,
- There should be a permanent transfer of Assets
- without consideration
- ITC is availed on such assets,
then only it will cover under the schedule I.
If we read the provision, once the Taxpayer has availed ITC on Business Assets then it’s disposal would be considered supply under this schedule.
The treatment would remain same,
- Whether it is on the direction or without the direction like specified in schedule II.
- Consideration is not involved,
- Transfer / Disposal is intentional or unintentional.
Shockingly, going by the strict interpretation of the statue Even if asset is discard / transfer on account of Natural calamity, accident or fire or without consideration but ITC is availed then it will be treated as supply.
What is covered under schedule II?
- Transfer of business assets will be treated as supply of Goods:
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
In simple terms,
– Any goods forming part of business assets
- transferred or disposed of so as no longer to form part of business assets
- by or under the directions of the person carrying on the business
Schedule refer the word ” business assets”, it means assets may be Fixed or Current. The treatment would remain same,
- Whether Transaction is done for consideration or without consideration,
- ITC has been availed on those goods or not,
- Goods belong to Pre GST era or Post GST era
Thankfully, going by the interpretation of the statue any loss or damage of such assets due to reasons such as accident, fire, natural calamity, theft etc. will not be covered and hence will not be treated as supply and should not attract GST.
From the combined reading of both schedule on following cases GST liability will not be attracted (or may be called exception to rule)
- Where ITC is not availed on assets
- Such assets are transferred or disposed of so as no longer to form part of business assets
- Without any consideration
- Without any directionsof the person carrying on the business (such as accident, fire, natural calamity, theft etc)
Valuation & determination of tax payable for above cases:
Once the supply is covered under GST, next question will arise in mind..
- Which rate should be applied?
- Whether ITC is required to be reversed or GST needs to be paid additionally on such discarded value?
- What should be value of transaction?
The tax treatment would depend upon can be done on the basis of Whether ITC is availed or not?
- If ITC has been availed on such Capital assets:
According to sec 18(6) of CGST Act, “ 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 such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.”
In simple terms, ITC has been taken below is payable on the basis of following:
- Amount of ITC taken should be reduced by such percentage as may be prescribed
- The tax on transaction value determined as per section 15
Whichever is Higher.
- If ITC has not been availed on Capital Goods:
- In this case GST is payable as per applicable rate and Tax invoice has to be prepared.
Special Note: where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.
Hope this article will be helpful & clear your confusion regarding,
GST should be paid or not, and what should be its value. This write up is made on the basis of my personal interpretation & different interpretation can be possible. Readers may forward the suggestion/comments & feedback. Readers are requested to seek professional opinion before take any decision.