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CA Intermediate · Taxation · Value of Supply

Nair Enterprises, Kochi, purchased a machine for Rs 5,00,000 and claimed full input tax credit. After 2 years and 3 months it sells the machine for Rs 3,50,000 (excluding GST). The machine was not subject to ITC-blocked treatment. Assume the 5% per quarter reduction of purchase value method (Rule 44(6)) applies with no complete quarters being rounded off, i.e. only completed quarters count. Which is the correct value? (Tax paid on purchase was Rs 90,000, ITC availed Rs 90,000.) Choose the tax liability basis: higher of ITC reduced by 5% per quarter, or tax on transaction value.

The payable tax is Rs 63,000. For capital goods on which ITC was taken, the supplier pays the higher of ITC reduced by 5% per quarter (Rs 49,500 after nine quarters) or tax on transaction value (18% of Rs 3,50,000 = Rs 63,000).

  1. ATax on transaction value, i.e. 18% of Rs 3,50,000 = Rs 63,000, as it exceeds the reduced ITC of Rs 49,500Correct
  2. BITC reduced by 5% per quarter, i.e. Rs 49,500
  3. CRs 90,000, the full ITC availed
  4. DNil, as the machine is a capital good sold after two years

Explanation

Completed quarters = 9 (2 years 3 months), so reduction = 45%; remaining ITC = 90,000 x 55% = Rs 49,500. Tax on transaction value at 18% = Rs 63,000. The higher amount, Rs 63,000, is payable. Rs 49,500 ignores the 'higher of' rule.

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