On recommendations made in 39th GST Council Meeting held on March 14, 2020 amendment is made to procedure for reversal of ITC in respect of capital goods partly used for affecting taxable supplies and partly for exempt supplies under Rule 43 (1) (c) of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”). The CBIC vide Notification No. 16/2020- Central Tax dated March 23, 2020 has amended CGST Rules in following manner:
- Rule 43 of the CGST Rules- Manner of determination of ITC in respect of capital goods and reversal thereof in certain cases
- Sub-clause (c) is substituted with:
“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 provisions of sub-section (4) of section 18, if it is subsequently covered under this clause.”
- Sub-clause (d) is substituted with:
“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 ‘1’0‘, 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’;”
- In sub-clause (e) following explanation is inserted:
“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.”
- Sub-clause (f) is omitted.