GST on Fixed Assets

GST Provisions for Fixed Assets

Background

• Fixed Assets were subjected to separate provisions under Excise and Service Tax under Cenvat credit rules, 2004.
• There were several restriction on availability of Cenvat credit, Sale and disposal of Fixed Assets under the previous regime.
• Under GST, the provision are more liberal as compared to rules under Excise and Service Tax.
• GST allows input tax credit with fewer restrictions and also has simplified provisions related to Sales and disposal.
• This article provides brief summary of ITC on Fixed assets and provisions related to Sales/Disposal of Fixed Assets

Definitions

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;

Section 2 (59)

“input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;

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;

The definition of capital goods under GST is based on accounting concept rather than any specific definitions given in the act.

Further the use of capital goods shall be for furtherance or in the course of business which again is an improvement over previous laws which mandated nexus with final output or service.

ITC on Capital Goods

Section 16 (1)

Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

As per Section 16(1), ITC can be availed on goods and services which are used in the course of furtherance of business. Since the words ‘goods’ have been used, it implies that goods includes ‘capital goods’ and ‘inputs’. The ITC is available in one go unlike Cenvat Credit which was allowed over two financial years.

Credit is also allowed on Capital Goods which are sent directly to the Job Worker for use in Job work processes.

ITC on Capital Goods – Cases of dis-allowance

ITC on Capital Goods shall not be allowed in following cases:

• If depreciation has been claimed on the tax portion i.e. if tax portion is capitalized with the value of capital good as benefit shall not be available twice.
• If Capital Goods are used exclusively for the exempt supplies or for personal use (Other than for business purposes).
• If Capital Goods are used partially for the exempt supplies or for personal use (Other than for business purposes), then credit shall be restricted to input tax as is attributable to the purposes of his business.
• ITC on Motor Vehicles, Veessels, Aircraft except for purposes of further supply, transportation of passengers, training or transportation of Goods.
• Works contract services used in construction of immovable property (construction of building)
• Goods or Services used for construction of immovable property (construction of building)
• Assets written off, lost, stolen, destroyed.

ITC Reversal on Disposal of Capital Goods

Sale of Fixed Assets

As per Section 18(6) read with Rule 40(2) and Rule 44(1)(b), in case of Supply of Capital Goods on which ITC was availed, an amount higher of the following shall be payable:

• ITC availed reduced by 5% per quarter from the date of invoice or the input tax credit involved in the remaining useful life in months computed on pro-rata basis, taking the useful life as five years or
• Tax on transaction amount as per Section 15

Write of Fixed Assets

As per Schedule I, Permanent transfer or disposal of business assets where input tax credit has been availed on such assets will be treated as supply.

Since write off is also a supply, the tax payable shall be equal to the ITC on remaining life as per Section 18(6) as transaction amount is Nil.

Sale of Old/Used Vehicles

In case of sale of old/used vehicles, where depreciation has  been claimed under Income Tax Act, the value of supply shall be  :

• Consideration received – depreciated value

Where the margin of such supply is negative, it shall be ignored

In any other case, the value that represents the margin of supplier shall be, the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored.