EXAMPLE-128

M/s Madhu sold product “X” which was taxable under GST. ITC utilized on the inputs for manufacturing above product. On 30^th Nov , product “X were made exempt under GST. The balance in E- credit ledger is Rs 100000 on 29^th  Nov.   On 29^th Nov, Madhu had stock of raw materials worth rupees 1 lakh, raw material in semi finished stock worth rupees 5 lakh and in finished stock of worth rupees 3 lakh. GST paid at the rate of 12% on raw materials. And also have capital goods on which ITC is availed of amount 60000 and  upto 29^th Nov, it have been use for 4 years  4 months and 20 days.

Determine the effect  when taxable goods become exempt under GST in above example.

Answer

Section 18(4) specifies that where the goods and/ or services supplied by registered taxable person become exempt absolutely under section 11, registered taxable person shall pay an amount, by way of debit in the electronic credit or 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 such exemption.

  In view of above provision as M/s Madhu product were exempted from 30^th Nov. She is liable to reverse the credit of input held in stock on 29^th Nov.i.e. 9 lakh *12% = Rs. 1.08 lakh on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input. As regards capital goods lying in stock, the input tax credit involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years;

 Capital goods have been use for 4 years  4 months and 20 days.

Residual life in months = 7 months ignoring part of month

 Input tax credit taken on such capital goods= Rs. 60000

Input tax credit attributable to remaining residual life= 60000 *7/60 = Rs. 7000

Hence M/s Madhu paid 1,08,000+7000 =115000 Rs by debiting 100000 in E-credit ledger and balance 15000 from e-cash ledger.

The above calculation done separately for CGST, SGST and IGST.