Amendments in Rule 43 of CGST Rules 2017

Published At: 20-May-2020

Amendments in Rule 43 of CGST Rules 2017 

(Manner of Reversal of ITC in respect of Capital Goods)


In 39th GST Council meeting held on 14th March, 2020, inter-alia, it was recommended to amend the procedure for reversal of input tax credit in respect of capital goods partly used for affecting taxable supplies and partly for exempt supplies under rule 43 (1) of CGST Rule, 2017.

The Central Government vide Notification No. 16/2020- Central Tax dated 23rd March 2020 has made the amendments effective from 1st April, 2020, in Rule 43 of the CGST Rules.

Background

Section 17(1) & (2) of the CGST Act, 2017 states that where the Input tax credit is used partly for the purpose of business and partly for other purpose or partly used for effecting taxable supplies (including zero rated supplies) and partly for effecting exempt supplies then the amount of ITC as attributable to exempt supplies or non- business purpose shall be reversed as per Rule 42/43 of the CGST Rules, 2017.

Rule 43 lays down the manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases.

As per Rule 43(1),"Subject to the provisions of section 16(3), the input tax credit in respect of capital goods, which attract the provisions of section 17(1) & (2), being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner"

A comparative analysis of the amendments in various clauses of sub-rule 1 of Rule 43:

Clause

 

Before Amendment

After Amendment

(a)

the amount of input tax in respect of capital goods used or intended to be used exclusively for non-business purposes or used or intended to be used exclusively for effecting exempt supplies shall be indicated in FORM GSTR-2 and FORM GSTR-3B and shall not be credited to his electronic credit ledger;

No change in clause

(b)

the amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero-rated supplies shall be indicated in FORM GSTR-2 and FORM GSTR-3B and shall be credited to the electronic credit ledger

No change in clause

(c)

the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A‘, shall be credited to the electronic credit ledger and the useful life of such goods shall be taken as five years from the date of the invoice for such goods:

Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, the value of ‘A‘ shall be arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof and the amount ‘A‘ shall be credited to the electronic credit ledger;

Explanation - An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause.

the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, being the amount of tax as reflected on the invoice, shall credit directly to the electronic credit ledger and the validity of the useful life of such goods shall extend upto five years from the date of the invoice for such goods:

Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, input tax in respect of such capital goods denoted as ‘A’ shall be credited to the electronic credit ledger subject to the condition that the ineligible credit attributable to the period during which such capital goods were covered by clause (a),denoted as ‘Tie’, shall be calculated at the rate of five percentage points for every quarter or part thereof and added to the output tax liability of the tax period in which such credit is claimed:

Provided further that the amount ‘Tie’ shall be computed separately for input tax credit of Central tax, State tax, Union territory tax and Integrated tax and declared in FORM GSTR-3B.

Explanation - An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause.

(d)

the aggregate of the amounts of ‘A‘ credited to the electronic credit ledger under clause (c), to be denoted as ‘Tc‘, shall be the common credit in respect of capital goods for a tax period:

Provided that where any capital goods earlier covered under clause (b) is subsequently covered under clause (c), the value of ‘A‘ arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value ‘Tc‘

the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c) in respect of common capital goods whose useful life remains during the tax period, to be denoted as ‘Tc’, shall be the common credit in respect of such capital goods:

Provided that where any capital goods earlier covered under clause (b) are subsequently covered under clause (c), the input tax credit claimed in respect of such capital good(s) shall be added to arrive at the aggregate value ‘Tc’

(e)

the amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as ‘Tm‘ and calculated as-

Tm = Tc ÷60

the amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as ‘Tm‘ and calculated as-

Tm = Tc ÷60

Explanation.- For the removal of doubt, it is clarified that useful life of any capital goods shall be considered as five years from the date of invoice and the said formula shall be applicable during the useful life of the said capital goods

(f)

the amount of input tax credit, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, be denoted as ‘Tr‘ and shall be the aggregate of ‘Tm‘ for all such capital goods;

Completely omitted

(g)

the amount of common credit attributable towards exempted supplies, be denoted as ‘Te‘, and calculated as-

Te= (E÷ F) x Tr

where, 'E' is the aggregate value of exempt supplies, made, during the tax period, and

'F' is the total turnover in the State of the registered person during the tax period

No change in clause

Te= (E÷ F) x Tm

 

(h)

The amount ‘Te’ along with the applicable interest shall, during every tax period of the useful life of the concerned capital goods, be added to the output tax liability of the person making such claim of credit.

(i) The amount ‘Te’ shall be computed separately for input tax credit of Central Tax, State tax, Union territory tax and Integrated tax and declared in FORM GSTR-3B.

No change in clause

 


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