GST on Inward supply of capital goods

Tejveer Singh

This article is only for the purpose of credit of GST paid on Inward supply of capital goods.

Capital Goods:Section-2(19) – 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.

GST  Capital Goods Input Rule-43

Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases.

1. Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, being partly used for the purposes of business and partly for other purposes, or partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for  effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner, namely;

a. The amount of input tax in respect of capital goods used or intended to be used exclusively for non-business or used or intended to be used exclusively for effecting exempt supplies shall be indicated in Form GSTR-2 and shall not be credited to his electronic credit ledger.

b. The amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero –rated supplies shall be indicated in Form GSTR-2 and shall be credited to the electronic credit ledger.

c. The amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’,shall be credited to the electronic credit ledger and the useful life of such goods shall be taken as five years from the date of the invoice for such goods.

Provided that where any capital goods earlier covered under clause (a) is subsequently covered  under this clause, the value of ‘A’ shall be arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof and the amount ‘A’ shall be credited to the ECL;

Explanation:- An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section(4) of section 18, if it is subsequently  covered under this clause.

d. The aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for a tax period:.

Provided that where any capital goods earlier covered under clause (b) is subsequently covered under clause (c ), the value of ‘A’ arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value ‘Tc’;

e. The amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as ‘Tm’ and calculated as-

f. The amount of tax credit, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, be denoted as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods;

g. The amount of common credit attributable towards exempted supplies, be denoted as ‘Te’ and calculated as –

Where,

‘E’ is the aggregate value of exempt supplies, made, during the tax period, and

‘F’ is the total turnover of the registered person during the tax period:

Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last six period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is  to be calculated;

Explanation:- For the purposes of this clause, it is hereby clarified that the aggregate value of exempt supplies and the total shall exclude the amount of any duty tax or tax levied under entry 84 of list 1 of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said schedule.

h. (1) The amount ‘Te’ along with the applicable interest shall, during every tax period of the useful life of the concerned capital goods, be added to the output tax liability of the person making such claim of credit.

(2) the amount ‘Te’ shall be computed separately for Central tax, State Tax, Union tax and Integrated Tax.

Let’s understand with example:-

‘E’ is the aggregate value of exempt supplies, made, during the tax period, and

‘F’ is the total turnover of the registered person during the tax period.

1. Company purchased capital goods on 08-07-2017 for Rs. 1,70,000/- for exempted and taxable supplies.

2. Company purchased capital goods on 08-07-2017 for Rs. 1,50,000/- to be used for exempt supplies.

However w.e.f. 20-08-2017, these are used to manufactures both exempt a taxable supplies.

3. Company purchased capital goods on 08-07-2017 for Rs. 2,40,000/- for taxable supply purposes. W.e.f. 15-08-2017, these capital goods are to be used for both taxable and exempt supplies.

Computation of Input tax credit:-

Step:-1(Most Important)

Example-1

Inward taxable & exempt supplies:- Firstly we can take full credit during the tax period. After that we will reduce 5% every quarter or part of quarter. Because an exempt supplies capital goods credit is not allow.

Example:-2

Capital goods purchase for exclusively use in exempt supplies dated 08-07-2017 Rs. 1,50,000/-.

After that company used same goods in taxable & exempt supplies.

20-08-2017 Rs. 1,50,000/- (July-Sep). It’s a part of quarter but we will calculate as complete quarter.

Now let’s calculate computation of output tax liability =>

Note:-The aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c ), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for a tax period:.

Step:-2  Monthly  Input credit

 Tm=> Tc/60(5*12)

‘Tm’1=> Rs. 1,29,690/60 => Rs. 2161.15 per month credit

‘Tm’2=> Rs. 1,70,000*18%=> Rs. 30,600/-

                Rs. 30,600/60 => Rs.      510/-

Note:-The amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as ‘Tm’ and calculated as-

Step -3

Total input monthly=>  Rs. 2161.15+510     =>    Rs. 2671.5/-

Aggregate of all such capital goods (Tm) Tr. =>   Rs. 2671.5/-

Note:-The amount of tax credit, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, be denoted as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods;

Step:-4

Note-The amount of common credit attributable towards exempted supplies, be denoted as ‘Te’ and calculated as –

‘Te’=> (E/F)*Tr

‘Te’=> 30,00,000/70,00,000*2671.50 =>   Rs. 1144.92/-

Finally we get exempt (Ineligible credit) portion amount, which need to be deposit along with interest in every tax period.

Note:- The amount ‘Te’ shall be computed separately for central tax, state tax, union territory tax and integrated tax.

Disclaimer:-

The contents of this document are solely for information/knowledge purpose and have been prepared on the basis of relevant provisions and as per the information exiting at the time of preparation. It does not constitute professional advice or a formal recommendation. The author has undertaken utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.

(Author can be reached at tejveersingh10@gmail.com)