Example Rule 9 GST Input Tax Credit Rules – Reversal of ITC on Inputs & Capital Goods

By | May 26, 2017
(Last Updated On: May 26, 2017)

Reversal of Input Tax Credit on Inputs and Capital Goods

A registered person needs to Reverse the Input tax Credit on Inputs and Capital Goods , If person who has availed Input Tax Credit and

  •  Opt for Composition Scheme , or 
  • Where the goods or services or both supplied by him become wholly exempt or
  • Registration of registered person is cancelled

Example Rule 9 GST Input Tax Credit Rules

Sr NoParticularsReference Rs
1Capital Goods  (Machinery  No 1 ) Value100000
IGST @ 12%A12000
Invoice Value 112000
2Date of Shifting to Composition Scheme01/04/2018
3Date of Inward Supply and use of Capital Goods01/09/2017
4Period of Use of Capital Goods (In Days)212
5Period of Use of Capital Goods (In Months)7
6useful remaining life in months (taking the useful life as five years)B53
7ITC Attributed to useful remaining lifeC= A*B/6010600

 

Case -1 : ITC Lapses
Balance of ITC as on 31.03.201815000
ITC utilized for capital goods for useful remaining life10600
Balance ITC will lapse4400

Case -2 : ITC becomes Payable
Balance of ITC as on 31.03.20181500
ITC utilized for capital goods for useful remaining life10600
Balance Tax Payable9100

 

Case -3 : No ITC Payment required
Sr NoParticularsReference Rs
1Capital Goods  (Machinery  No 1 ) Value100000
IGST @ 12%A12000
Invoice Value 112000
2Date of Shifting to Composition Scheme01/04/2024
3Date of Inward Supply and use of Capital Goods01/09/2018
4Period of Use of Capital Goods (In Days)2039
5Period of Use of Capital Goods (In Months)68
6useful remaining life in months (taking the useful life as five years = 60 months)B0
7ITC Attributed to useful remaining lifeC= A*B/600


As Per Section 18(4) of CGST Act 2017

Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly 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, reduced by such percentage points as may be prescribed ( Refer Rule 9 below) on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption:

Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

As Per Section 29(5) of CGST Act 2017 

Every registered person whose registration is cancelled 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 or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed. ( Refer Rule 9 below) 

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

As per Rule 9 of Input Tax Credit Rules

Manner of reversal of credit under special circumstances

(1) The amount of input tax credit relating to inputs held in stock, inputs contained in semifinished and finished goods held in stock, and capital goods held in stock shall, for the purposes of sub-section (4) of section 18 or sub-section (5) of section 29, be determined in the following manner namely,-

(a) for inputs held in stock and inputs 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;

(b) for capital goods 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.

Illustration
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= Ç
Input tax credit attributable to remaining useful life= C multiplied by 5/60

(2) The amount, as prescribed in sub-rule (1) shall be determined separately for input tax credit of integrated tax and central tax.

(3) Where the tax invoices related to the inputs held in stock are not available, the registered person shall estimate the amount under sub-rule (1) based on the prevailing market price of goods on the effective date of occurrence of any of the events specified in sub-section (4) of section 18 or, as the case may be, sub-section (5) of section 29.

(4) The amount determined under sub-rule (1) 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, where such amount relates to any event specified in sub-section (4) of section 18 and in FORM GSTR-10, where such amount relates to cancellation of registration.

(5) The details furnished in accordance with sub-rule (3) shall be duly certified by a practicing chartered accountant or cost accountant.

(6) The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to capital goods shall be determined in the same manner as prescribed in clause (b) of sub-rule (1) and the amount shall be determined separately for input tax credit of IGST and CGST.

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.

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