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TMI BlogITC reversal on fixed assets written off in the booksX X X X Extracts X X X X X X X X Extracts X X X X ..... A private limited company has written off the residual value of computers in its books of accounts at the end of their useful life of 3 years, as per Schedule II of the Companies Act . Is ITC reversal required? If yes, should it be done under Rule 40(2) or as per Schedule I of the CGST Act ? Is it not an anomaly in the law that the Companies Act provides a useful life of 3 years for computers, whereas the GST law provides 5 years? Request valuable inputs from the experts. Thank you - Reply By Sadanand Bulbule - The Reply = Dear Sir ITC needs to be reversed in terns of Section 17[5][h] of the CGST Act , which speaks about write-off segment as per the procedure prescribed. - Reply By Sadanand Bulbule - The Reply = Please read it as: Written o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff segment - Reply By Ramesh Pokar - The Reply = Thank you sir for your reply, but sir section 17(5)(h) talks about goods written off, in the query capital goods have been written at the end of useful life of the assets. - Reply By Sadanand Bulbule - The Reply = Dear Sir Broadly speaking for the purpose of Section 17[5][h] , the concept of 'goods' also includes capital goods . - Reply By KASTURI SETHI - The Reply = Sh.Ramesh Pokar Ji, Q. No.1 : Is ITC reversal required? If yes, should it be done under Rule 40(2) or as per Schedule I of the CGST Act ? Reply : Reversal is required under Rule 40 (2) of CGST Rules . It is covered under the definition of 'Capital Goods'. .See Section 2 (19) of CGST Act . Q.No.2 : Is it not an ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maly in the law that the Companies Act provides a useful life of 3 years for computers, whereas the GST law provides 5 years ? Reply : No anomaly. Both Acts are independent of each other. Both Acts have different specific purposes and statutory responsibilities to be complied with accordingly. I also concur with all the replies of an expert, namely, Sh.Sadanand Bulbule, Sir - Reply By Amit Agrawal - The Reply = In my view, reversal of ITC is NOT required in given situation as subject goods are still getting used for business by the tax-payer and same were written off only to comply provisions of Company Law. IMHO, there is lacuna / gap in law / rule to deal with a situation where used capital goods (but whose economic life is not yet over) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are written off, 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 or recommendation. - Reply By VENU K - The Reply = In my opinion permanent transfer or disposal of business assets is something that has to be factually arrived at. Just because company law requires a write off in a number of years it does not mean that the asset has ceased to exist or disposed off. Schedule 1 merely creates a legal fiction of supply even if there is no consideration in case of permanent transfer as well as disposal. Permanent transfer requires two parties where as Disposal does not need two parties. One cannot tax something that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is still existing and working in the business just on the basis of disclosures in the financial statements. Moreover disposal would mean something that has been discarded as having no value. Disposal cannot be assumed in the case of a business asset that is still existing in the business. If it is written off because it has ceased to work due to complete breakdown, then reversal will be required. A treatment under another law ipso facto cannot result in a different tax treatment in GST. Rule 40 (2) The amount of credit in the case of supply of capital goods or plant and machinery, for the purposes of sub-section (6) of section 18 , shall be calculated by reducing the input tax on the said goods at the rate of five percentage points for eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry quarter or part thereof from the date of the issue of the invoice for such goods. Sec 18(6) talks about supply of capital goods or plant and machinery on which input tax credit has been taken. Schedule 1 clause 1 can deem permanent transfer or disposal as a supply where input tax credit is availed even if there is no consideration. - Reply By Amit Agrawal - The Reply = In continuation of my post above at Sr. No. 6, section 18(6) Rule 40(2) has no application in given situation as there is no supply . There is no permanent transfer or disposal of business assets in described situation. Hence, Schedule-I does not cover situation under discussion here. P.S. 'Reversal of ITC' 'Paying taxes against outward supply' are TWO diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent things under law. These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation. - Reply By Sadanand Bulbule - The Reply = Dear all 1] While welcoming the experts on the topic under discussion, I wish to add that Section 17[5] contains non obstante clause and overrides Section 16[1] and Section 18[1] . Therefore in my opinion ITC needs to be denied, even if the actual written off goods are used exclusively for business purpose. 2] The term used is written off. Further, as per clause (h) of subsection (5) of section 17 states that goods are written off, not value written down. The liability to forego the credit would arise, only when the goods are entirely written off and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t its value. Experts are free to counter academically. - Reply By Shilpi Jain - The Reply = Is the computer discarded? Is it not with the Company for use? If it is still physically with the Company, then in my view there is no requirement to reverse any ITC. - Reply By Sadanand Bulbule - The Reply = Dear all It is also worth to refer: The CBIC Circular No: 170/02/2022-GST dated 6th July 2022 refers to the reclaim of ITC, only under specific situations, where the reversal/ineligibility is on a provisional basis and ITC can be claimed on satisfaction of a condition under Section 16[2][d] e.g. non-payment of supplier beyond 180 days, delayed receipt of goods, etc. The Circular treats the ITC ineligible under section 17(5) as absolutely ineligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and non-reclaimable. - Reply By Amit Agrawal - The Reply = In continuation of my posts above, providing depreciation on 'Computers' as per Schedule II of the Companies Act , is NOT akin to 'goods written off'. There is big difference between goods getting depreciated in books of account due to their usage over period of time and goods being 'written off'. Therefor, IMHO, Section 17(5)(h) cannot be applied to the given situation under discussion here. Without prejudice to above , there is no mechanism prescribed under GST Law and Rules made thereunder, to calculate amount of ITC to be reversed when ' capital goods which are used by the tax-payer for some years' ( whose economic life is not yet over) are wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten off, lost, stolen or destroyed. These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation. - Reply By Amit Agrawal - The Reply = Though on somewhat different context, one may refer to the discussion we had under Issue-ID: 118820 bearing subject-line as ' SEC 17(5)(h) ', wherein I have explained why Section 17(5)(h) does NOT apply where a fire destroys Finished Goods / FG even though those FG were manufactured by the tax-payer using input goods / services and the tax-payer has indeed availed ITC against such input goods / services. I also explained that 'there is no legal provision / rules to demand reversal of ITC against inputs which are contained in semi-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inished or finished goods when such semi-finished or finished goods gets destroyed by fire In above referred discussion, I had also explained why the quoted ruling therein (i.e. 2023 (9) TMI 852 - AUTHORITY FOR ADVANCE RULING, TELANGANA IN RE: M/S. GEEKAY WIRES LIMITED ) is legally unsustainable . These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation. - Reply By Shilpi Jain - The Reply = Do have a look at my article on this topic https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=9286 - ITC reversal on fixed assets written off in the books - Query Started By: - Ramesh Pokar Dated:- 23-10-2024 Last Replied Date:- 30-10-2024 Goods and Services Tax - G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST - Got 14 Replies - GST - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management 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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