18.1 Availment of ITC on transition to Normal Levy under GST

Question-1 [ICMAI-F-Ch7-58] [Person applying for new registration]

M/s X Ltd. becomes liable to pay tax on 1st Dec and has obtained registration on 15^th Dec. The GST paid goods lying in the premises of M/s X Ltd. as on 30th Nov are as follows:

You are required to answer the following:

(a) Eligible amount of input tax credit.

(b) Time limit to submit declaration on common portal.

(c) Whether any certification required while availing the credit, if so from whom.

Answer

Facts

Date from which M/s X Ltd become liable for registration = 1^st Dec

Date of Registration = 15^th Dec

Statutory Provisions

a) Section 18(1)(a) provides that Person applying for registration within 30 days when he becomes liable to registration and has been granted such registration may take ITC on inputs held in stock or contained in semi-finished or finished goods held in stock but not in Capital Goods as on the day immediately preceding the date when he becomes liable to pay tax under this Act

b) Rule 40(1)(b) provides that RP shall make a declaration in ITC-01 to the effect that he is eligible to avail ITC within 30 days from the date of becoming eligible to avail ITC u/s 18(1)

c) Rule 40(1(d) provides that If aggregate ITC > Rs.2 lacs, details furnished in the declaration u/c (b) shall be duly certified by a practicing chartered accountant or a cost accountant.

Advice

a) Eligible input tax credit on inputs but not on Capital Goods as on 30^th Nov = 36,000 + 54,000, + 2,16,000 = Rs.3,06,000

b) Declaration in ITC -01 may be furnished within 30 days from the date of becoming eligible to avail ITC u/s 18(1) i.e. by 30^th Dec

(c) Since ITC of M/s X > Rs.2,00,000 hence Declaration shall be duly certified by a practicing Chartered Accountant or a Cost Accountant.

Question-2 [ICSI-E-J18-82-1] [Voluntary Registration u/s 25(3)]

Raj & Co., applied for voluntary registration under CGST Act, 2017 on 5th July,2017 and the registration was granted on 15th July, 2017. Raj & Co., was having the stock available against the invoices for a period of 3 months old. Raj & Co., shall be eligible for ITC on such stock as held as on:

(A) 30th June, 2017; (B) 05th July, 2017; (C) 15th July, 2017; (D) 14th July, 2017

Question-3 [ICMAI-F-Ch7-59] [Voluntary Registration u/s 25(3)]

Mr. A applies for voluntary registration on 22nd Nov and obtained registration on 25th Nov. Mr. A has stock on the following two dates:

On 24th Nov, Mr. A is also purchased plant and machinery for Rs.2,00,000 plus GST 28%. Mr. A purchased good at uniform rate through out the year at Rs.100 per unit plus GST paid 18%.You are required to find the eligible input tax credit to Mr. A

Answer

Facts

Voluntarily Registration

Date of Registration = 25^th Nov

Stock & Tax as on 24^th Nov

GST on Capital Goods purchased on 24^th Nov = Rs.36,000

Statutory Provisions

a) Section 18(1)(b) provides Person takes voluntary registration u/s 25(3) shall take ITC on inputs held in stock or contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration.

Opinion based on above provision

a) Eligible input tax credit on inputs but not on Capital Goods = Rs.2,52,000

b) ITC on capital goods will not be allowed. But if Capital goods would has been purchased after registration, then ITC on capital goods would be allowed.

18.1.1 ITC on Capital Goods shall be reduced by 5% per quarter from date of invoice

Question-1 [ICSI-P-J21-O-3e-5] [Composition to Normal levy]

Ganesh opted for composition scheme under GST at the time of his registration. He purchased a plant for Rs.42 lakhs on 29th September, 2019 and paid GST @ 18%. The invoice was prepared by the supplier on 4th October, 2019 and no input tax credit was allowed as he was under composition scheme. From 7^th July, 2020 he shifted his option to pay GST under normal scheme. Is Ganesh eligible for ITC ? If so, calculate the amount of tax credit allowable to him.

Answer

Statutory Provisions

(a) Section 18(1)(c) provides that RP ceases to pay tax under composition levy u/s 10 shall take ITC on inputs¹ and Capital Goods on the day immediately preceding the date from which he is liable to pay tax u/s 9.

(b) Proviso to Section 18(1)(c) read with Rule 40(1)(a) provides that ITC on CG shall be reduced by 5% per quarter of a year or part thereof from date of invoice.

Facts

Switching from Composition Levy to Regular Levy

Date for Regular Levy u/s 9 = 7^th July, 2020

Date of purchase of Capital goods = 29-09-2019

No of quarter lapsed = 4 quarter

Advice

ITC on Capital Goods as on 7^th July shall be available

Question-2 [ICMAI-F-Ch7-60]

Mr. C a registered taxable person, was paying tax at composition scheme upto 30th July. However, wef 31^st July, Mr. C becomes liable to pay tax under regular scheme. Other information:

(a) Input as on 30th July for Rs.3,54,000 (inclusive of GST paid @18%).

(b) Capital goods purchased for Rs.5,00,000 (invoice date 22nd April 2017, GST 18% Not included)

Find the eligible ITC to Mr. C.

Note: Mr. C not availed depreciation on the GST paid on capital goods.

Answer

Statutory Provisions

a) Section 18(1)(c) provides that RP ceases to pay tax under composition levy u/s 10 shall take ITC on inputs¹ and Capital Goods on the day immediately preceding the date from which he is liable to pay tax u/s 9.

b) Proviso to Section 18(1)(c) read with Rule 40(1)(a) provides that ITC on CG shall be reduced by 5% per quarter of a year or part thereof from date of invoice or documents on which capital goods were received.

c) Section 16(3) provides that If RP has claimed depreciation on the tax component of cost of capital goods and plant and machinery under Income-tax Act, ITC on said tax component shall not be allowed.

Facts

Switching from Composition Levy to Regular Levy

Date for Regular Levy u/s 9 = 31^st July

GST Paid on Capital Goods = Rs.5,00,000*0.18 = Rs.90,000

Advice

a) ITC on inputs and Capital Goods as on 30^th July shall be available

Question-2A [ICMAI-I-D18-4a-5]

Mr. C a registered taxable person, was paying tax at composition scheme upto 30th July. However, wef 31st July, Mr. C becomes liable to pay tax under regular scheme. Other information:

(i) Unutilized inputs at day end on 30th July for Rs.3,54,000 (inclusive of GST paid @18%)

(ii) Capital goods purchased for Rs.5,00,000 (invoice date 22nd April, 2017, GST charged separately @18%)

Find the eligible ITC to Mr. C

Note: Mr. C has not availed depreciation on the GST paid on capital goods.

Answer

Date of transition = 31^st July

Day Preceding the Date of Transition = 30^th July

DOP of Capital Goods = 22^nd Apr, 2017

Life spent from invoice date = 2 quarter

18.1.2 Time limit for availing ITC u/s 18(1) = 1 yr from date of Invoice

Quesiton-1 [ICSI-E-D19-72-1] [ICSI-E-D20-78-1]

Availability of Input Tax Credit in special cases as per section 18(1) of the CGST Act, 2017 is available where a registered person is having tax invoice relating to such supply issued not after expiry of ...................... from the date of issue of tax invoice.

(A) 3 months; (B) 6 months; (C) 1 year; (D) 9 months

Question-1A [ICSI-E-J19-O-77-1] [ICSI-E-J21-O-86-1] [Question not clear]

Input tax credit cannot be availed after the expiry of _________ from the date of issue of tax invoice of supply.

(A) 6 months; (B) 3 months; (C) 1 year; (D) 2 years

Question-1B [ICSI-E-D19-O-96-1] [Question not clear]

Lamb Ltd. received goods from Gower & Co. on 23-4-2018 along with delivery challan. It paid the amount to the supplier on 2-5-2018. The invoice issued by Lamb Ltd. dated 27-4-2018 was lost and input tax credit was omitted to be claimed. The maximum time within which the input tax credit could be claimed by Lamb Ltd. is available up to:

(A) Within 6 months from the date of invoice

(B) Within 1 year from the date of invoice

(C) Within 3 months from the date of invoice

(D) Within 1 month from the date of invoice

Question-1C [ICSI-E-D18-O-85-1] [Wrong Question]

Patel of Surat, Gujarat supplied goods to Patil of Mumbai, Maharashtra for Rs.1,20,000 (excluding GST) but after adding 30% profit margin (on cost). Patil is also a taxable person. IGST rate is 18%. The amount of input tax credit that can be availed and the maximum time limit for availing such input tax credit by Patil of Mumbai, Maharashtra as per CGST Act, 2017 is ...................

(A) Rs.28,080 and within 6 months from the date of issue of tax invoice

(B) Rs.7,020 and within next quarter from the date of issue of tax invoice

(C) Rs.1,600 and within 1 year from the date of issue of tax invoice

(D) None of the above

18.2 Reversal of ITC on Exit from Normal Levy under GST

Question-1 [ICMAI-F-Ch7-62] [Taxable to Exempt Supply]

The goods manufactured by Royal Ltd. have been exempted from GST with effect from 15th Nov 20XX. Earlier these goods were liable to tax @ 18%. Its inputs were liable to GST @12%. Following information is supplied on 15th Nov 20XX:

(i) The inputs costing Rs.1,44,720 are lying in stock.

(ii) The inputs costing Rs.77,184 are in process.

(iii) The finished goods valuing Rs.4,82,400 are in stock, the input cost is 50% of the value.

(iv) The balance in ECrL shows credit balance of Rs.2,79,104.

(v) Royal Ltd. also purchased capital goods for Rs.2,00,000 by paying GST 28% (invoice dated 10th July 20XX)

The department has asked Royal Ltd. to reverse the credit taken on inputs referred above. However, Royal Ltd. contends that credit once validly taken is indefeasible and not required to be reversed. Decide.

What would be your answer if the balance in ECrL receivable account as on 15th Nov 20XX were Rs.29,104?

Answer

Date of Exemption = 15^th Nov

Day Preceding the Date of Exemption = 14^th Nov

DOP of Capital Goods = 10^th July

Life spent from invoice date = 5 months + 5 days = 5 months [Ignoring part of months]

Remaining Life = 60 months – 5 months = 55 months

Mode of payment of ITC

*Proviso to Section 18(4) provides that after payment of such amount, balance of ITC, if any, lying in RP’s ECrL shall lapse

** Rs.77,802 shall be paid by Cash

18.3 Tax Payable on Sale of Capital Goods & PM on which ITC has been taken

Question-1 [ICSI-E-J19-I-93-1]

The registered person, in case of supply of capital goods or of plant and machinery on which input tax credit (ITC) has been availed/ taken shall pay an amount equal to the Input Tax Credit on such capital goods or plant and machinery which is being arrived at by reducing the Input-tax at________ percentage points for every quarter or part thereof from the date of issue of invoice of such goods or the tax on the transaction value of such capital goods, whichever is higher.

(A) 3; (B) 5; (C) 6; (D) 2

Question-2 [ICMAI-F-D18-6b-7] [ICMAI-F-Ch7-61] [Supply of used P&M]

M/s A Ltd. sold plant and machinery after being used in the manufacture of taxable goods for Rs.4,00,000 on 1^st Nov 2018. GST is payable on transaction value of plant and machinery 18%. M/s A Ltd. purchased this machine vide invoice dated 22nd Nov 2017 for Rs.5,50,000/- plus GST 18%.

M/s A Ltd. availed the credit on said plant and machinery. Find the amount payable by M/s A Ltd. u/s 18(6) of the CGST Act, 2017.

Answer

Statutory Provision

Section 18(6) provides that in case of supply of capital goods or plant and machinery, on which ITC has been taken, RP shall pay an amount higher of 

ITC taken on CG or P&M - 5% for every quarter or part thereof from the issue date of invoice or

Tax on transaction value of such CG or P&M determined u/s 15,

Working

DOP of P&M = 22/11/2017

Purchase Price of P&M = Rs.5,50,000

GST Paid on purchase = Rs.5,50,000*18% = Rs.99,000

Date of Sale = 01/11/2018

Life spent = 4 Quarter

ITC to be paid on sale of P&M is higher of

ITC taken – 5% p.q.  = Rs.99,000 – Rs.99,000*5%*5 = 74,250

Tax on sale value of P&M = Rs.4,00,000*18% = Rs.72,000

Therefore M/s A Ltd is to Pay Rs.74,250 on sale of PM

Question-2A [ICSI-P-J18-4b-5]

Jayakumar Textiles Ltd., purchased a machinery on 12th Aug, 2017 for Rs.12 lakhs (excluding GST). The company put the machinery to use after the purchase and availed ITC for the eligible amount. The machinery was sold as second hand machinery on 14th May, 2018 for Rs.9 lakhs. During purchase as well as sale of the machinery, the GST rate applicable was 18%. Assuming that there was no change in legal position after Nov,2017, discuss the steps which Jayakumar Textiles Ltd., is required to take at the time of sale of the secondhand machine. Briefly state the statutory provisions involved.

Answer

Statutory Provision

Section 18(6) provides that in case of supply of capital goods or plant and machinery, on which ITC has been taken, RP shall pay an amount higher of 

ITC taken on CG or P&M - 5% for every quarter or part thereof from the issue date of invoice for such goods as prescribed in Rule 40(2) or

Tax on transaction value of such CG or P&M determined u/s 15,

Working

DOP of P&M = 12/08/2017

Purchase Price of P&M = Rs.12,00,000

GST Paid on purchase = Rs.12,00,000*18% = Rs.2,16,000

Date of Sale = 14/05/2018

Life spent = 4 Quarter

ITC to be paid on sale of P&M is higher of

ITC taken – 5% p.q.  = Rs.2,16,0000 – Rs.2,16,000*5%*4 = 1,72,800

Tax on sale value of P&M = Rs.9,00,000*18% = Rs.1,62,000

Therefore Jayakumar Textiles Ltd is to Pay Rs.1,72,800 on sale of PM

Question-2B [ICAI-F-3b [M-5]

On 25^th August, 2017, M/s Agarwal & Agarwal Ltd., a registered supplier of textile products located in Bengaluru (Karnataka) purchased one machine for Rs.12,39,000 including IGST, from one supplier of Maharashtra who issued invoice on the same date. M/s Agarwal & Agarwal Ltd. put the machinery to use on the same day and availed input tax credit for the eligible amount. M/s Agarwal & Agarwal Ltd. sold this machine after using the machine in the process of manufacture of taxable goods for Rs.7,50,000 excluding lGST, to Mr. Suresh Kumar of Andhra Pradesh on 20^th August 2018. During purchase as well as sale of the machinery, the lGST rate applicable was 18%. Is M/s Agarwal & Agarwal Ltd., required to pay GST? If yes, calculate the amount of tax payable under GST Laws at the time of sale of the machine. Also briefly state the relevant statutory provisions.

Note: Assume that there was no change in legal position after August, 2017.

Answer

Statutory Provision

Section 18(6) provides that in case of supply of capital goods or plant and machinery, on which ITC has been taken, RP shall pay an amount higher of 

ITC taken on CG or P&M - 5% for every quarter or part thereof from the issue date of invoice for such goods as prescribed in Rule 40(2) or

Tax on transaction value of such CG or P&M determined u/s 15,

Working

DOP of P&M = 25/08/2017

Purchase Price of P&M = Rs.12,39,000 [Including IGST]

GST Paid on purchase = Rs.12,39,000*18/118 = Rs.1,89,000

Date of Sale = 20/08/2018

Life spent = 5 Quarter

ITC to be paid on sale of P&M is higher of

ITC taken – 5% p.q.  = Rs.1,89,000 – Rs.1,89,000*5%*5 = 1,41,750

Tax on sale value of P&M = Rs.7,50,000*18% = Rs.1,35,000

Therefore M/s Agarwal & Agarwal L is to Pay Rs.1,41,750 on sale of PM

Question-2C [ICSI-E-J21-70-1]

Rex Ltd. purchased a machine for Rs.5 lakhs plus GST 12% on 01.05.2019. It availed input tax credit and used the machine for manufacture of goods. On 12.12.2020, the machine was sold to its allied concern for Rs.1,50,000 plus GST @ 12%. How much is the GST payable on sale of machine ?

(A) Rs.39,000 (B) Rs.36,000 (C) Rs.33,000; (D) Rs.18,000

Answer

Statutory Provision

Section 18(6) provides that in case of supply of capital goods or plant and machinery, on which ITC has been taken, RP shall pay an amount higher of 

ITC taken on CG or P&M - 5% for every quarter or part thereof from the issue date of invoice for such goods as prescribed in Rule 40(2) or

Tax on transaction value of such CG or P&M determined u/s 15,

Working

DOP of P&M = 01-05-2019

Purchase Price of P&M = Rs.5,00,000

GST Paid on purchase = Rs.5,00,000*12% = Rs.60,000

Date of Sale = 12/12/2020

Life spent = 7 Quarter

ITC to be paid on sale of P&M is higher of

ITC taken – 5% p.q.  = Rs.60,000 – Rs.60,000*5%*7 = Rs,39,000

Tax on sale value of P&M = Rs.1,50,000*12% = Rs.18,000

Therefore M/s Rex & Co is to Pay Rs.39,000 on sale of PM

Question-2D [ICSI-E-D21-75-1]

XYZ Ltd of Jaipur purchased on 1.8.2019 a machine for Rs.10 lakh and paid IGST @ 12%. The ITC of the capital goods used in business was claimed till the machine was sold on 5.12.2020 for Rs.6,00,000 to Yadav Enterprises of Jaipur by charging tax under GST @ 12%. Find out the amount of tax payable/ITC reversible.

(A) Rs.1,56,000; (B) Rs.84,000; (C) Rs.72,000; (D) Rs.90,000

Answer

Statutory Provision

Section 18(6) provides that in case of supply of capital goods or plant and machinery, on which ITC has been taken, RP shall pay an amount higher of 

ITC taken on CG or P&M - 5% for every quarter or part thereof from the issue date of invoice for such goods as prescribed in Rule 40(2) or

Tax on transaction value of such CG or P&M determined u/s 15,

Working

DOP of P&M = 01-08-2019

Purchase Price of P&M = Rs.10,00,000

GST Paid on purchase = Rs.10,00,000*12% = Rs.1,20,000

Date of Sale = 05/12/2020

Life spent = 6 Quarter

ITC to be paid on sale of P&M is higher of

ITC taken – 5% p.q.  = Rs.1,20,000 – Rs.1,20,000*5%*6 = Rs,84,000

Tax on sale value of P&M = Rs.6,00,000*12% = Rs.72,000

Therefore XYZ Ltd is to Pay Rs.84,000 on sale of PM.

Question-2E [ICAI-I-M18-O-9c-4]

Bharat Associates Pvt. Ltd. purchased machinery worth Rs.9,00,000 (excluding GST) on 20-07-2017 on which it paid GST @ 18% and availed the ITC. On 05-03-2018, it sold the machinery for Rs.7,00,000 (excluding GST) to Hindustan Associates Pvt. Ltd. The GST rate on sale is 18%. What will be the course of action for Bharat Associates Pvt. Ltd. to follow under CGST Act, 2017?

Statutory Provision

Section 18(6) provides that in case of supply of capital goods or plant and machinery, on which ITC has been taken, RP shall pay an amount higher of 

ITC taken on CG or P&M - 5% for every quarter or part thereof from the issue date of invoice for such goods as prescribed in Rule 40(2) or

Tax on transaction value of such CG or P&M determined u/s 15,

Working

DOP of P&M = 20-07-2017

Purchase Price of P&M = Rs.9,00,000

GST Paid on purchase = Rs.9,00,000*18% = Rs.1,62,000

Date of Sale = 05/03/2018

Life spent = 3 Quarter

ITC to be paid on sale of P&M is higher of

ITC taken – 5% p.q.  = Rs.1,62,000 – Rs.1,62,000*5%*3 = Rs,1,37,700

Tax on sale value of P&M = Rs.7,00,000*18% = Rs.1,26000

Therefore Bharat Associates Pvt. Ltd. is to Pay Rs.1,37,700 on sale of PM.