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 camishramanish@gmail.com.

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Qualification: CA in Practice
Company: Manish Mishra
Location: Noida, Uttar Pradesh, IN
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6 responses to “GST on sale or discard of Capital Assets”

  1. Manish Mishra says:

    Mr. Moondra, there is no such condition to hold assets after its economic life.

    Only condition is to pay GST on consideration. In your case pay GST only at the consideration received.

    However if asset are discarded within 5 years than ITC claimed less 5℅ per quarter has to be reversed. consideration

  2. Manish Mishra says:

    Mr. Prakash, It would be supply as per GST and chargeable to tax.

    Since anyways sales would be with consideration.

  3. JAWAHARLAL MOONDRA says:

    1. Fixed Assets or Capital Assets depreciate over a period of time and become obsolete and/or unusable. If these assets are discarded and.or disposed off, what will be treatment of input credit of GST in such cases.

    2. If the Input credit claimed in say 1,00,000/- and the discard value is hardly 5000/- then will it not be advisiable to hold on the assets in stock rather than disposing it off and reverse the GST claimed?

  4. prakash says:

    in our private ltd company we have a commercial van to deliver the goods to the retailers.

    we have not claimed the vat.(jan 2016 )

    now we want to sell the van .
    gst is applicable or not

    prakash
    9443537727
    ndtotaloil@gmail.com

  5. Manish Mishra says:

    Hereby it is necessary to quote that article 4 of schedule II says that transfer of business asset where goods forming part of the assets of a business are transferred or disposed of by the direction of the person carrying business with or without consideration will be supply of the goods by the person.
    Here definition of Capital good is important which says that capital goods means goods, which is capitalize and intended to be used in furtherance of business, Sec 2(19) of CGST Act.
    Here we need to think that even if Car which is not capital goods, ITC has not been allowed but still it falls under the definition of Goods and part of the asset of the company.
    Capital Goods means Goods but it’s vise- versa is not true.

  6. Anirudh Agarwal says:

    Thanks sir this post is very helpful, please keep posting on GST

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