Sale / Discard of Capital Assets Under Goods & service Tax.
Under GST every supply is liable to Tax as per Sec 9 of CGST Act, 2017. Section 7 of CGST act, 2017 defines scope of supply, which says
(1) For the purpose of this Act, expression “supply” includes:-
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
(2) Activities and services specified in Schedule III;
Schedule I activities made or agreed to be made without CONSIDERATION is supply read with Section 7 of CGST Act, 2017. Schedule I says that “permanent transfer” of assets where Input Tax Credit has been availed if transferred than it would be considered as supply and fall into the ambit of GST.
So here the prime condition is that Input tax credit has been claimed on that assets which is transferred free of cost. Let’s understand this by an example where a CAR has been used by the director of the company. Since Input Tax credit on CAR is not allowed as per the restriction put under section 17(5) of CGST Act, 2017. When it is transferred to director after few years free of cost than it is not a supply as defined under section 7 of CGST act read with Schedule I and not chargeable to tax.
It is important to note that if car is sold to director or any person with consideration whether in cash or kind then it is covered under the definition of supply and chargeable to Tax. Similarly if any assets transferred or discarded by way of free gift or without consideration in any manner on which Input tax credit has been claimed would be considered supply and credit claimed at the time of purchase has to be reversed.
This ambit has covered all related transaction of transfer of asset between related and distinct person as defined under section 25 of the act. It would be interesting to see the valuation of assets where book value is nil and transfers without consideration where value would be defined as per section 15 of the Act.
Writer is Qualified Chartered Accountant and can be reached at [email protected]