Reversal of Input Tax Credit in Special Cases under GST

Just like in present tax structure, Reversal of Credit under GST also has the same meaning. In a layman language, reversal of credit means reversal of the credit already taken.

The essence of this write- up is to decipher the special cases and manner in which the availed Input tax credit is reversed.

Contents of this write- up

• Special cases covered under reversal of credit, and
• Manner of reversal of credit in special cases

Introduction

Reversal of credit means the credit which is availed and utilized, so long the final product is dutiable, but subsequently when final product becomes exempt, the availed and utilized credit is reversed.

Special cases covered under reversal of input tax credit

• Opted for Composition Scheme

Where a registered person who availed input tax credit, but opted to pay tax under composition scheme, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, calculated in a prescribed manner.

• Goods or services or both already supplied, becomes subsequently exempt

Where a registered person supplies goods and services, but subsequently these goods or services or both supplied by him becomes exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, calculated in a prescribed manner.

• Cancellation of registration

In case of registered person whose registration is cancelled, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in a prescribed manner.

Provided that in case of capital goods, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods under section 15, whichever is higher.

Manner of reversal of credit under special cases

Following points are to be considered while determining the credit which is to be reversed:

In case of input

Inputs which are held in stock and inputs which are contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input.

In case of capital goods

Capital goods which are held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.

If tax invoices are not available

Where the tax invoices related to the inputs held in stock are not available, the registered person shall estimate the amount based on the prevailing market price of goods on the effective date of occurrence of any of the above mentioned events.

Furnishing of details in FORM GST ITC- 03

The amount determined in case where person Opted for Composition Scheme and where the Supply of goods or services or both becomes subsequently exempt, shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03 and the details furnished here shall be duly certified by a practicing chartered accountant or cost accountant.

Furnishing of details in FORM GST ITC- 10

The amount determined in case of Cancellation of registration shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-10 and the details furnished here shall be duly certified by a practicing chartered accountant or cost accountant.

In case of supply of capital goods [section 18(6)], on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods, reduced by such percentage points as prescribed in rule 9(1)(b) [the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years] or the tax on the transaction value of such capital goods determined under section 15, whichever is higher.

Where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR1.

 Hope this information will help you in your Professional endeavors. For further assistance/query, feel free to write back to us.

Author: C S Ekta Maheshwari is the Author of this article and is Company Secretary by profession. The Author can be reached at csektamaheshwari14@gmail.com

Disclaimer: The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook 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.