EXAMPLE-142

QRS Ltd purchased machinery for Rs 1439600 which is inclusive of integrated tax at the rate of 18%. The machinery was purchased on 28.09.2017 and was disposed of as second hand machinery on 5.10.2019 for a price of 800000 (exclusive of tax). The central tax @ 9% and State tax @ 9% and integrated tax @ 18% are applicable on the date of disposal.

(i)                 You are required to calculate the amount of ITC on purchase of machinery.

(ii)               Calculate the amount of reversal of ITC already availed at the time of disposal.

Answer

(i)                  Full Tax paid on purchase of capital goods is available for input tax credit in the month of receipt of capital goods on the basis of invoice in accordance of section 16(1) subject of other condition like used or intended to be used for the purpose of Business.

Thus Input tax credit on tax paid on capital goods = 1439600*18/118 = Rs. 2,19,600 can be availed in the month of September.

(ii)               Section 18(6) with rules of ITC provides that  where supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered taxable person shall pay an amount equal to:-

(a)                 the ITC taken on the said capital goods or plant and machinery reduced by the percentage points per quarter or part thereof (i.e. 5%  as may be specified), in this behalf) OR

(b)               the tax on the transaction value of such capital goods or plant and machinery under sub-section (1) of section 15,

whichever is higher

Accordingly, computation of amount payable towards input tax credit already availed on disposal of machinery in October month return of 2019 will be as follows;.