According to the provisions embodied in Rule-43 the admissible amount of ITC in respect of Capital Goods from the total amount of input tax i.e. T in respect of such Capital Goods , shall be determined by considering following facts embodied in various clauses of sub-rule(1) of the aforesaid rule :-
(a) The amount of input tax out of T in respect of capital goods used or intended to be used exclusively and entirely for non-business purposes or for executing exempted supplies shall be indicated in FORM GSTR-2 and this amount i.e. T1 shall not be credited to the electronic credit ledger of the concerned taxable person .
(b) The amount of input tax out of T in respect of the capital goods used or intended to be used exclusively and entirely for taxable supplies (i.e. supplies other than exempted supplies) but including zero rated supplies i.e. T2 shall be indicated in FORM GSTR-2 and shall be credited to the electronic credit ledger of the concerned taxable person .
It is pertinent to note that aforesaid component of T i.e. T2 must not relate to any common purposes including exempted supplies .
(c) The amount of input tax out of T in respect of Capital Goods not covered by (a) and (b) i.e. A = T- (T1+T2) shall relate to the Common Credit and shall be credited to the electronic credit ledger of the concerned taxable person and the useful life of such capital goods shall be taken to be of five years from the date of the invoice for such goods .
(d) The aggregate amount of A credited under clause (c) calculated in respect of all the concerned machineries shall be denoted by Tc and shall be the Common Credit in respect of capital goods for a tax period .
(i) It has been clarified by the proviso after clause(c) of sub-rule(1) that if any capital goods which was earlier used or utilized exclusively and entirely for non-business purposes or exclusively and entirely for executing exempted supplies , is subsequently used for common purposes to which clause (c) relates , the value of A shall be calculated by reducing the input tax relating to such machinery at the rate of five percentage points for every quarter or part thereof and the amount A in respect of such machinery shall be credited to the electronic credit ledger of the concerned taxable person . This amount of A shall also be part of Tc .
(ii) It has also been clarified by the Explanation to clause (c) that an item of capital goods which on its receipt was declared to be used exclusively and entirely for non-business purposes or exclusively or entirely for executing exempted supplies , shall not attract the provisions embodied in sub-section (4) of section 18 of the CGST /SGST Act , 2017 , if it is subsequently used for common purposes as embodied in clause (c) and as such the balance input tax credit shall not lapse .
(iii)It is pertinent to note that sub-section (4) of section 18 embodies following provisions :
“(4) 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 exempt absolutely under section 11, 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, 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.”
(iv) It has also been clarified by another proviso after clause (d) of sub-rule(1) that where any capital goods which were earlier used or utilized exclusively for supplies other than exempted supplies but including zero rated supplies , is subsequently used for common purposes to which clause (c) relates , the value of A shall be calculated by reducing the input tax relating to such machinery at the rate of five percentage points for every quarter or part thereof and the amount A in respect of such machinery shall be added to the aggregate Common Credit amount Tc and shall be credited to the electronic credit ledger of the concerned taxable person .
(e) Since Tc denotes the Common Credit in respect of capital goods for the entire useful life i.e.05 years or 60 months and the tax period for the cases where ITC is admissible is a month , the amount of Common Credit in respect of capital Goods for a tax period , denoted as Tm , shall be calculated as-
Tm = Tc x 1/60
(f) The aggregate of Tm i.e. aggregate amount of Common Credit in respect of all capital goods at the beginning of the period whose useful life remains during such period , shall be denoted as Tr.
(g) The amount of Common Credit attributable to exempted supplies which is to be reversed shall be denoted as Te and shall be calculated as –
Te = Tr x E/F
Where “E” is the aggregate value of exempted supplies executed during the period .
“F” is the total turnover of the registered person during the tax period .
(i) It has also been provided that where the registered person does not have any turnover or the aforesaid information regarding “E” and “F” are not available , the value of E/F shall be calculated by taking the values of “E” and “F” of the previous tax period for which the details of such turnover are available .
(ii)It has also been clarified by the Explanation that for the purposes of this clause (g) amount of any duty or tax levied under entry 84 of List 1 of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule , shall be excluded from the amount of exempted supplies and total supplies as mentioned above .
(h) The amount Te alongwith the applicable interest shall be added to the output tax liability of the concerned person for the tax period . This will be done for every tax period until the useful life of the concerned machineries expire .
• Sub-rule (2) of this rule clarifies that the amount Te shall be calculated separately for Central tax (CGST ) , State tax ( SGST ) , Union Territory tax ( UTGST ) and Integrated tax (IGST) .
• However there should not be any confusion in respect of the provisions embodied in sub-section (2) of section 140 of the CGST /SGST Act where it has been provided that the registered person , other than a person opting for composition under section 10 , shall be entitled to take the credit of un-availed CENVAT / un-availed ITC in respect of the capital goods which has not been carried forward in the return furnished under the existing law by him for the period ending with immediately preceding the appointed day in such manner as may be prescribed .
The explanation to this sub-section clarifies that that the un-availed credit as mentioned aforesaid is to be calculated as per the provisions of the existing law .
The PEN TALKS 