Goods & Service Tax on transfer of old/used Capital Assets

Capital Assets:

Section 2(19) of CGST Act, 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 of furtherance of business.

Situation 1: A Registered Person sell used Fixed Assets (Other than Motor Vehicle):

If a registered person buy the Fixed Assets (pre or post GST) and taken Input Tax Credit, than GST shall be paid according to section 18(6) of the Act. GST payable should be calculated on the basis of useful life of assets according to Rule 44(1).

For Example, M/s. ABC purchase Machinery A for Rs. 500000/- as on 01/04/2018 with GST credit of Rs.90000/-. Machine was sold in the month of Sept-2020 for Rs.100000/- & GST Rs.18000/-.

Machine’s useful life according to GST rule is 60 months and machine used for 30 months. Unused period is 30 months. Tax on pro rata basis =45000/- (90000/60*30). Rs.18000/- or Rs.45000/-, higher amount will be paid. Hence invoice for Rs.250000/- should be made to come out 18% is 45000/-. This was to be paid as tax invoice and effect to be given in GSTR-1 & GSTR-3B. There was no reversal of ITC.

If a registered person buy the Fixed Assets in Pre-GST regime and not availed input tax credit because the assets used for supply of exempted goods. When such supplier sells the assets is Chargeable to GST as the assets itself is not exempted goods.

Situation 2: A registered person sell used Motor Vehicle:

Rate of Tax on used Motor Vehicle to be charges as per Notification No. 08/2018 – Central Tax (Rate) dated 25/01/2018. The condition is the ITC had not availed at the time of purchase of such Motor Vehicle.

Motor Vehicle Purchased Post-GST regime:

Motor Vehicle Purchased Pre-GST regime:

The method of calculating GST was not differ if the purchase has not availed input tax credit in pre-GST regime also.

Rate of Tax on used Motor Vehicle to be charges as per Notification No. 08/2018 – Central Tax (Rate) dated 25/01/2018.

Situation 3: A unregistered person sell used Fixed Assets:

An unregistered person can sell old assets without charging GST. A person is liable for registration if his aggregate turnover (including sales of old assets) exceeds turnover specified u/s 22 of CGST Act.

Situation 4: A composition dealer sell used Fixed Assets:

Section 7(1)(a) of the Act says “Supply” includes 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. Hence, GST charged on assets sold shall be the rate equal to the composition levy being paid on his regular supply.

Situation 5: Supply of Second Hand Goods by a person dealing in purchase and sales of second hand goods.

Taxable value for supply of second hand goods shall be the margin value i.e. difference between the selling price and the purchase price and where the margin value of such supply is negative, it shall be ignored.

To avail this margin value scheme the following conditions should be fulfilled.

• The supplier should be registered under GST.
• The supply of goods shall be sold as such as it were purchased or after minor processing which does not change the nature of goods and
• Where no input tax credit has been availed on the purchase of such goods.

Transaction Value:

• As per Section 15 when transaction between two unrelated parties and price is sole consideration then transaction value will be treated as value of supply. If assets given as gift, then one has to go for valuation as per valuation rules.
• Damage/Lost Assets, Theft, etc. Since in such cases no transaction has taken place, therefore no transaction value is there so Tax cannot be determined. Therefore amount as determined as per rule 44(6) will have to be paid as output tax liability.