GST on Sale of Fixed Assets

Critical aspects of the Goods and Services Tax, or GST, are the taxability of ‘Sale of Capital Goods’. In recent years many questions have been posted with regards to the taxability of Capital Goods. Fixed assets are long-term assets that a company has purchased and is using for the production of its goods and services. Fixed assets are non-current assets, meaning the assets have a useful life of more than one year. Under the GST Law, these fixed assets are referred as ‘Capital Goods’. Capital goods under section 2(19) of CGST Act mean goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

While for all other goods and services there are defined GST rates which can be directly applied on the taxable value to arrive at the GST value, in case of Capital Goods there is a different mechanism to be used to compute the GST liability.

Relevant points related to GST Applicability & Treatment of ITC availed on sale of Fixed Assets:- GST Applicability on Sale of Capital Goods purchased in Pre GST era, Treatment on Sale of Capital Goods purchased after implementation of GST, Liability on sale of Capital Assets on which Input Tax Credit (ITC) is not availed, How to deal with loss/damage of assets where no consideration is received? and Tax treatment on sale/disposal of capital goods in case when ITC is availed.

Chart on Applicability of GST on sale of Fixed Assets under different condition

Note 1:- Unintentional disposal means loss or damage of assets due to reasons such as accident, fire, natural calamity, theft etc, whereas sale or transfer of assets are considered as intentional disposal of Fixed Assets

Note 2:- The case where no consideration is involved must be discussed in the light of the amendment to the definition of Supply (Section 7 of the Act) made by the CGST Amendment Act, 2018. Before the amendment, if any transfer of capital assets was made under the direction of the person,(intentional transfer) the transaction was a supply under the provision of the Act, whether or not consideration was involved.

However, after the amendment, the requirement of consideration is a must. Therefore, it would be right to conclude that where no ITC has been availed, the transfer of capital goods without consideration shall not be a supply and hence no GST should be chargeable.

Note 3:- In case of unintentional disposal such as Damage/Lost Assets, Theft, ITC availed need to be reversed and will have to be paid as output tax liability.

Valuation & determination of Tax payable:- As per sec 18(6) of CGST Act, the taxable amount will be:- 

An amount equal to Input tax credit attributable to remaining useful life 

OR 

The tax on the transaction value of such capital goods determined under section 15, whichever is higher.

Example 

Mr. X purchased Fixed Asset on 1st June 2015 (Pre GST), Even if he purchased the same Asset in Post GST Era, the methodology to calculate the taxable amount will remain the same.

Calculation of taxable amount:- 

Fist Method 

Input tax credit attributable to the remaining useful life:- 

(c*f/ 60) = 9000*5/60 = Rs 750 

Second Method

Tax on the transaction value of such Fixed Asset

4000*18% = Rs 720/- 

Rs 750/- being higher of the Second Method  will be added as taxable value.

Invoicing and reporting in GSTR 1 when ITC attributable to remaining useful life is higher:- 

ITC availed for remaining useful life of Fixed Assets amounting to Rs 750 /- need to be added as tax liability and reported in GSTR 1. However taxable value to be reported in invoice and GSTR 1 will be Rs. 4167. (750/18%=4167) 

Invoice No ......... Invoice Date........

Invoicing and reporting in GSTR 1 when Tax on transaction value is higher:-

In such cases tax invoice has to be prepared and actual consideration will be the taxable value. Same has to be reported in GSTR 1. In the example given above, if sale value is Rs 5000/- and tax on transaction value is ( 5000 * 18 % = 900 ) higher than ITC attributable to remaining useful life ie Rs 750/-, Invoice will be prepared for (5000 + 900) 5900 /- and same is to be reported in GSTR 1

Outward Liability in case of Damage /Loss of those assets for which ITC has been availed 

In case of unintentional transactions, such as Damage/Lost Assets, Theft, etc. tax on transactional value cannot be determined as there will not be any transaction value of damaged, lost capital goods Therefore amount towards ITC attributable on remaining useful life ie Rs 750 /- will have to be added as output tax liability. 

The amount shall be determined separately for an input tax credit of central tax, State tax, Union territory tax, and integrated tax

Margin Scheme for valuation of capital goods 

The margin scheme is applicable for a dealer other than a person dealing in second-hand goods, only in the case of motor vehicles, that too only if input tax credit has not been claimed.

The scheme is made applicable to all taxpayers on the sale of the motor vehicle held as a capital asset. Vide Notification No. 8/2018 - Central Tax (Rate) dated 25 Jan 2018. In this regard, GST has to be paid on the excess of selling price over the written down value as per the Income Tax Act, 1961, where depreciation has been claimed by the taxpayer. Where no depreciation has been claimed, GST shall be paid on the difference in the selling price and the purchase price.

Margin Scheme under GST Law

As per the Margin Scheme under GST Law, a second hand goods dealer can sell used goods paying GST only on the margin value of such goods, instead of the transaction value or the sale value [Rule 32 (5) of the CGST Rules ] 

Purpose of having a Margin Scheme in GST

The purpose of the scheme is to avoid double taxation as these are second hand / used goods, having earlier borne the final tax incidence, and re-entering the economic supply chain.