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Major Amendement in GST Rules Regarding Input Tax Credit of Capital Goods w.e.f. 1st April, 2020

Article Dated 18th April, 2020

 

MAJOR AMENDEMENT IN GST RULES REGARDING INPUT TAX CREDIT OF CAPITAL GOODS W.E.F. 1ST APRIL, 2020

By Sh. Rajesh K. Arora,
SUPERINTENDENT (Retd.), CUSTOMS, GST & C.EX

The Central Government in terms of Notification No. 16/2020-Central Tax, New Delhi dated 23rd March, 2020, amended the following rules in the Central Goods and Services Tax Rules, 2017 with effect from 01.04.2020. These rules may be called the Central Goods and Services Tax (Third Amendment) Rules, 2020.

(A)

In the said rules, in rule 43, in sub-rule (1) with effect from the 1st April, 2020, (a) for clause (c), the following clause shall be substituted, namely:-

(i) “(c) 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 rovisions of sub-section (4) of section 18, if it is subsequently covered under this clause.”

(ii) Prior to 01.04.2020 i.e. upto 31.03.2020, the Clause (c) was as under:-

(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 suchgoods:

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.

(iii) Effect of the amendment

That w.e.f. 01.04.2020, the calculation of input tax credit in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, meaning thereby that those capital goods, which are neither used or intended to be used exclusively for non-business purposes or for exempted supplies (i.e. clause (a) of the said sub Rule) nor used or intended to be used for exclusively for supplies other than exempted supplies but including zero rated supplies (i.e. clause (b) of the said sub Rule), means those capital goods which are used for both taxable and exempted  supplies, shall be done in accordance to clause (c) of the said Rule. From 1st April, 2020, it is stipulated that input tax credit in such capital goods would be the amount of tax as reflected on the invoice. This particular line has been inserted in the clause (c) and the same would be directly credited to the Electronic credit ledger.

Proviso to this rule is also amended and as per the substituted proviso to rule, w.e.f 01.04.2020, whereby any capital goods, which were earlier covered under clause (a) and subsequently covered under this clause (c), meaning thereby where any capital good earlier exclusively used for non-business purpose or exempted supplies and are, now, used for both taxable and exempted & non-taxable supplies, input tax credit of such capital goods shall be credited to 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) i.e the period for which such capital goods were exclusively used for non-business purposes or for exempted supplies will be denoted as 'Tie, and the same 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.

Thereby meaning that w.e.f 01.04.2020, the full input tax credit, as reflected in the invoice, firstly will be credited to electronic credit ledger. Thereafter, the ineligible credit attributable to the period, for which said capital goods were used exclusively for non-business purpose or for exempted supplies shall be calculated at rate of five percentage points for every quarter and thereafter will be added to output tax liability of the tax period in which such credit is claimed.

Prior to 01.04.2020 the proviso stated that the value of ‘A’ i.e.  input tax credit on such capital goods which were used exclusively for non-business purpose  or for exempted supplies and now used for both taxable and exempted supplies 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 shall be credited to the electronic credit ledger.

One more proviso has been inserted i.e. 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.

Thus prior to 01.04.2020, the input tax credit, on such capital goods, which were earlier used exclusively for non-business purposes and for exempted supplies and now utilized for taxable and exemptedsupplies, was arrived at calculating by reducing the input tax and amount shall be credited to electronic ledger. After 01.04.2020, full input tax credit will be credited to the electronic credit ledger and thereafter, the ineligible credit attributable shall be added to the output tax liability. The formula for calculation of input tax credit in both cases would be as 5% points for every quarter. The ineligible credit 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.

   
(B)

In the said rules, in rule 43, in sub-rule (1) with effect from the 1st April, 2020, for clause (d), the following clause shall be substituted, namely:-

(i) (d) “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’,

(ii) Prior to 01.04.2020, the clause (d) was as under:-

(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’.

(iii) Effect of the amendment

That w.e.f.  01.04.2020, following line, which is more clarificatiory, has been inserted that is “in respect of common capital goods whose useful life remains during the tax period”. Thus, making it clear that input tax credit in respect of capital goods for which useful life i.e out of five years, remains.

Further, proviso to this clause has been substituted. According to new proviso, any capital goods earlier covered under clause (b) meaning thereby those capital goods were exclusively used for taxable supply and now are used for both taxable and exempted supply i.e. 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’.

whereas previously, the proviso stated that the value of ‘A’ will be 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’ for such type of capital goods (which were earlier covered under clause (b) and subsequently covered under clause (c))

   
(C)

In the said rules, in rule 43, in sub-rule (1) with effect from the 1st April, 2020, in clause (e), the following Explanation shall be inserted, namely:-

(i) “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.”;

(ii) Effect of the amendment:- It has been clarified that useful life of any capital goods would be five years from the date of invoice. The said formula shall be applicable during useful life of said capital goods.

   
(D)

(i) In the said rules, in rule 43, in sub-rule (1) with effect from the 1st April, 2020, clause (f) shall be omitted.

(ii) Previously clause (f) was as under:-

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.

(iii) Effect of the Amendment:- Clause (f) which dealt with amount of input tax credit, at the beginning of a tax period, for those capital goods whose useful life remains has been omitted. Now substituted clause (c), and substituted clause (d) covers such scenarios’. Now There will be no remaining tax as ‘Tr’.

   
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