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CA Final · Indirect Tax Laws · Registration

Tanvi Pharma, a registered person, applies for cancellation of its registration on discontinuing business on 1 March. On the day immediately preceding cancellation it holds inputs in stock with ITC of Rs 80,000, for which the output tax payable on those goods is Rs 95,000. It also holds a machine bought 2 years earlier with ITC of Rs 1,00,000. Ignore the machine for now. How much must Tanvi pay under section 29(5) in respect of the inputs?

Tanvi Pharma must pay Rs 95,000. Section 29(5) requires the higher of the input tax credit on inputs in stock and the output tax payable on those goods. Here the output tax of Rs 95,000 exceeds the ITC of Rs 80,000, so the higher amount is paid.

  1. ARs 80,000
  2. BRs 95,000Correct
  3. CRs 15,000
  4. DRs 1,75,000

Explanation

Section 29(5) requires payment of the ITC on inputs held in stock or the output tax payable on such goods, whichever is higher. Rs 95,000 is higher than Rs 80,000, so Rs 95,000 is payable. Rs 80,000 uses only the ITC. Rs 15,000 takes the difference, and Rs 1,75,000 wrongly adds the two figures.

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