Page 40 - Chap7 ITC

12: Sec 18(6): Supply of capital goods or Plant & machinery on which ITC is taken

Q.32
On 25th August, M/s Agarwal & Agarwal, a registered supplier of taxable goods located in Bengaluru
(Karnataka), purchased one machine for ₹ 12,39,000 (including IGST) from one supplier of Maharashtra
who issued the invoice on the same date. M/s Agarwal & Agarwal received the machinery on the same day
and availed ITC for the eligible amount.
M/s Agarwal & Agarwal used the machine in the process of manufacture of taxable goods. However, M/s
Agarwal & Agarwal sold this machine to Mr. Suresh Kumar of Andhra Pradesh on 20th August of next year
for ₹ 7,50,000 (excluding lGST). With reference to section 18(6), determine the amount payable, if any, by M/s
Agarwal & Agarwal at the time of sale of the machine.
Note: The applicable rate of IGST is 18%. [Study Mat] [CA Final Nov 18 Exam]
Answer:
Ü If capital goods or plant and machinery, on which Input Tax Credit (ITC) has been availed, are supplied
(outward supply) by a registered person, they must pay an amount that is higher of the following [Sec 18(6)]:
1) ITC reduced by 5% per quarter or part thereof, from the date of invoice of purchase, or
2) Tax on the transaction value of such goods at the time of supply.
Accordingly, the amount payable on supply of machinery by M/s Agarwal & Agarwal shall be computed as
follows:
Particulars Amount (₹)
ITC taken on the machinery (₹ 12,39,000 × 18/118) 1,89,000

Less: Input tax credit to be reversed @ 5% per quarter for the period of use of machine
a) For the previous year = (₹ 1,89,000 × 5%) × 3 quarters 28,350
b) For the current year = (₹ 1,89,000 × 5%) × 2 quarters 18,900

Amount required to be paid by adding the reversal amount to the output tax liability 1,41,750
[Note] (A)

Duty leviable on transaction value (₹ 7,50,000 × 18%) (B) 1,35,000
Amount payable towards disposal of machine is higher of (A) and (B) 1,41,750
Thus, M/s Agarwal & Agarwal is required to pay an amount of ₹ 1,41,750 at the time of sale of machinery
by adding the same to the output tax liability.

Note:
Ü In the above solution, amount payable towards disposal of machine has been computed as per Rule 40(2), i.e.
ITC to be reversed for the period of use of capital goods/machine has been computed @ 5% for every quarter or
part thereof from the date of the issue of invoice.
Ü However, the said amount can also be computed in accordance with Rule 44(6), i.e. ITC involved in the
remaining useful life (in months) of the capital goods/ machine can be reversed on pro-rata basis, taking the
useful life as 5 years.

13: Taking ITC of Inputs and Capital goods sent for Job work

Refer chapter – Jobwork

14: Sec 20: Manner of distribution of Credit by ISD
Q.33
State the conditions that need to be followed by an input service distributor for distribution of credit.
[Study Mat]
Answer: The following conditions need to be followed by an input service distributor (ISD) for distribution of
credit:
1. The ISD is required to obtain a separate registration for distribution of credit.

2. The credit can be distributed to the recipients of credit against an ISD invoice containing prescribed
details.

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