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TMI Blogcapital goods destroyed in fireX X X X Extracts X X X X X X X X Extracts X X X X ..... In case of capital goods destroyed in fire on which ITC is claimed, the ITC to be reversed on it whether will be on 1) entire ITC originally claimed or 2) as per the formula prescribed under Rule 44(6) of CGST Rules 2017 ? - Reply By Amit Agrawal - The Reply = I think there is lacuna / gap in law / rule to deal with a situation where used capital goods (but whose economic life is not yet over) are lost, stolen or destroyed. No rule specifically deal with above situation. These are ex facie views of mine and the same should not be construed as professional advice / suggestion. - Reply By Kiran Tahelani - The Reply = It has to be done as per the formula prescribed under Rule 44(6) of CGST Rules 2017 - Reply By Amit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agrawal - The Reply = With due respect, Rule 44 (6) is for 'the purposes of sub-section (6) of section 18 ' and Section 18 (6) deals with ' supply of capital goods or plant and machinery, on which input tax credit has been taken'. Same does not deal with a situation where used capital goods ( but whose economic life is not yet over ) are destroyed in fire. These are ex facie views of mine and the same should not be construed as professional advice / suggestion. - Reply By Kaustubh Karandikar - The Reply = Thanks Amit ji for your kind advice. Will it not be advisable to reverse the ITC based on formula prescribed under Rule 40(2) of CGST Rules, 2017 since there is no specific guidelines on this, to avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id litigation? - Reply By Kiran Tahelani - The Reply = I apologize for quoting wrong rule in my earlier post, i stand corrected amit sir. However, as per my understanding if the capital goods after destroyed completely and sold as scrap then the reversal of such credit needs to be done as per rule 40(2) read with section 18(6) . However if capital goods is written off completely without being sold, then one may not require to reverse the credit, however matter is not free from litigation. please correct if i am misunderstanding something - Reply By Amit Agrawal - The Reply = Dear Shri Kaustubh Karandikar Ji, If objective is to avoid litigation, then, rule 40 (2) can be taken as guide. But, in absence of any specific ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le dealing with the given situation, some Dept's officer can always demand full reversal of original ITC quoting Section 17 (5) (h) . In other words, reversing ITC using ' rule 40 (2) as guide' is good starting point to show your bonafides to avoid litigation. But, it does not provide guarantee that litigation will not happen. Moreover, I hold a view that Section 17 (5) (h) does not apply to given situation as what is destroyed by fire is 'used capital goods whose economic life was still not over' and not the goods on which ITC was taken. This is more so when there are no rules prescribed to calculate amount of ITC required to be reversed in given situation under discussion. Needless to say that my views ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also litigation-prone. Some additional points to ponder : If I remember correctly , in excise regime, there are some case-laws dealing with 'inputs written off' where tribunal held that no reversal of ITC is required for 'partial' written off of any inputs. This had resulted into further amendment into relevant rules to cover even 'partial' written off requiring full ITC reversal (but re-credit, when used into manufacturing). These are ex facie views of mine and the same should not be construed as professional advice / suggestion. - Reply By Kaustubh Karandikar - The Reply = Dear Amit ji, yes, as you rightly mentioned there was a provision under the earstwhile Excise Regime. As correctly pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by you, department might demand full reversal since there is no specific provision. Thanks for the valuable inputs sir. - Reply By Amit Agrawal - The Reply = Dear Ms. Kiran Tahelani Ji, No need to apologise! I am glad that you started contributing on TMI earnestly. Fresh ideas and views are always welcome. Please continue to do good work W.r.t. your post at serial no. 5 dealing with a situation where if the capital goods after destroyed completely ( presumably by fire ), and sold as scrap then section 18(6) ( thereby Rule 40 (2) or 44 (6) ) itself does not apply, in my humble view, because what is supplied here is 'scrap' and not 'capital goods' per se. These are ex facie views of mine and the same shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be construed as professional advice / suggestion. - Reply By Amit Agrawal - The Reply = You are welcome, Shri Kaustubh Karandikar Ji! - Reply By Kiran Tahelani - The Reply = thank you amit sir for your kind words. also thank you for guiding me/ correcting me in this matter patiently. - Reply By Amit Agrawal - The Reply = You are welcome, Ms. Kiran Tahelani Ji! - Reply By Alkesh Jani - The Reply = Shri In this regards my view is as under :- The definition of 'goods' and 'capital goods' is given below :- (52) goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are agreed to be severed before supply or under a contract of supply; (19) capital goods means goods, the value of which is capitalised 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; From above, it is very clear that goods includes Capital goods, now Section 17 (5)(h) is given below :- (h) goods lost, stolen, destroyed , written off or disposed of by way of gift or free samples ; From above, it is clear that, when capital goods are destroyed due to fire, the ITC of the remaining life is to be reversed. Thanks - Reply By Shilpi Jain - The Reply = When there is no mechanism prescribed for the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to be reversed, a reasonable method can be adopted as was held by tribunals in many cases under the cenvat regime. So considering useful life as 5 years the reversal can be calculated. It makes no sense to reverse full credit when the asset indeed has been used for making taxable supplies. - Reply By Padmanathan Kollengode - The Reply = Dear experts, only a loud thinking for litigation and not an opinion on the query. Section 17 (5) reads as under: (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18 , input tax credit shall not be available in respect of the following, namely:- (h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples; and Can a position be taken that 17(5) can be invoked only before the capital goods is put to use and once it is put to use, sec. 17(5) does not apply? since the word used is shall not be available (does not say has to be reversed ). - Reply By Padmanathan Kollengode - The Reply = Dear experts, Also can a position be taken that where no mechanism is prescribed, reversal itself is not envisaged? The Supreme Court in the case of CIT v. B. C. Srinivasa Setty, 1981 (2) TMI 1 - SUPREME COURT , held that no capital gains tax is payable by an assessee where it was not possible to compute the capital gains u/s.48 of the Act . Although its in different proposition, can this principle be applied? - Reply By Abhijit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Mohan - The Reply = Dear Experts, - As per Schedule I of the CGST Act 2017 ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION includes (1) Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. Hence it seems that the case of capital goods getting destroyed and disposed falls under Section 18 of the act and Reversal of ITC can be computed as prescribed under Rule 44(1)(b) and 44(6 ) of the CGST Rules 2017 . - capital goods destroyed in fire - Query Started By: - Kaustubh Karandikar Dated:- 6-3-2023 Goods and Services Tax - GST - Got 16 Replies - GST - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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