360 degree analysis of Rule 43 of GST
By: – Shashank Gupta
Goods and Services Tax – GST
Dated:- 14-12-2018<\/p>\n
Determination and apportionment of input tax credit in respect of capital goods
\n(Critical analysis of Rule 43 of Central Goods and Services Tax Rules, 2017)
\nInput tax credit (the ITC) is the backbone of GST. In GST law as prevalent in India, on referring section 73 and section 74 of CGST Act, 2017 (the Act), one would appreciate that wrong availment of ITC is being treated as offence irrespective of it's actual utilization. In this article, rule 43 of CGST Rules, 2017 (the Rules) has been thoroughly discussed and critically analyzed so as to enable every reader to use this article as a ready reference. Rule 43 talks about ITC in respect of capital goods, so reference to any section in this article has been modified accordingly to concentrate on capital goods only. There are certain errors in drafting of rule 43, which we see with the flow of discussion.
\nIssues t<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ble outward supplies then ITC shall be available in respect of such goods to the extent these are used for said purpose. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n pects relevant for understanding rule 43 = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n le 43(1)(c) read with rule 43(1)(d) specifies that ITC in respect of commonly used capital goods (i.e. common credit) denoted by “A” [ or ƩA= Tc] shall be calculated as under – = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n utable towards non-business use. However, section 17(1) intends that if capital goods are used for non-business purpose then ITC shall not be available in respect of capital goods to the extent these are used for said purpose. Since Act shall prevail, it is a suggestion that while calculating exempt turnover for the tax period i.e. January 2018 in our example, non-business turnover shall also be added. In this way, a reasonable amount attributable towards non-business purposes shall also be added to output tax liability. Non-business turnover can be determined by applying valuation rules. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n een taken in January 2018. (This is why rule 43 does not specify any treatment for this) = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n c) specifies that useful life of commonly used goods shall be taken to be 5 years. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n supplies = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" 360 degree analysis of Rule 43 of GSTBy: – Shashank GuptaGoods and Services Tax – GSTDated:- 14-12-2018 Determination and apportionment of input tax credit in respect of capital goods (Critical analysis of Rule 43 of Central Goods and Services Tax Rules, 2017) Input tax credit (the ITC) is the backbone of GST. In GST law … Continue reading “360 degree analysis of Rule 43 of GST”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-15499","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/15499","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15499"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/15499\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15499"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15499"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15499"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\n * If inward supply of capital goods is used for effecting zero rated outward supply then ITC shall be available in respect of such goods to the extent these are used for said purpose.
\n * If inward supply of capital goods is used for effecting exempt outward supplies then ITC shall not be available in respect of such goods to the extent these are used for said purpose.
\n * If inward supply of capital goods is used for non-business purpose then ITC shall not be available in respect of capital goods to the extent these are used for said purpose.
\nSince this a settled position of law that a rule cannot override the provisions of Act, so in addition to above, ITC in respect of those capital goods shall also not be available which falls within the scope of section 17(5). This point has been focused specifically because rule 43 is silent on ITC of such capital goods.
\nAn<\/p>\n
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\nOne can take credit in respect of a capital goods as soon as four conditions as specified in section 16(2) are fulfilled, if otherwise is not ineligible for credit.
\nLet's analyze above concepts
\nSituation-1 Suppose a capital goods was purchased and received on 20.07.2017 along with invoice of even date. IGST charged on invoice was ₹ 6,60,000. Till December 2017, it was being used for effecting exempt supplies. But from January 2018 to June 2018, it was used commonly for effecting taxable supplies, exempt supplies and for the purpose of business as well as non-business purpose. From July 2018 to September 2018, it was used exclusively for effecting taxable supplies.
\nTurnover type
\nJanuary 2018
\nFebruary 2018
\nMarch 2018
\nApril 2018
\nMay 2018
\nJune 2018
\nExempt
\n4 crores
\n5 crores
\n2.5 crores
\n4 crores
\n2 crores
\n3.5 crores
\nNon-business
\n1 lakh
\n1 lakh
\n1 lakh
\n1 lakh
\n1 lakh
\n1 lakh
\nTotal
\n10 crores
\n15 crores
\n10 crores
\n20 crores
\n1<\/p>\n
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\nInput tax on such capital goods 6,60,000
\nLess: 5% for every quarter from date of invoice 66,000
\n (i.e., 6,60,000 × 5% × 2) –
\n TC = ƩA 5,94,000
\nLogically, if we exclude the proportionate exempt or non-business part from this ₹ 5,94,000, balance credit should be granted to the taxpayer.
\nWhen we move further, we see an error in drafting of rule 43. Let's see this –
\nAs per rule 43(1)(e), proportionate monthly common credit (denoted by Tm; Tm = Tc \/ 60) on such goods shall be ₹ 9,900 i.e. 5,94,000\/60 but it should logically be ₹ 11,000 i.e., 6,60,000\/60. However, treatment given in rule is beneficial for the taxpayer. Let's see this –
\nProportionate exempt part i.e. common credit attributable towards exempt supplies denoted by Te shall be calculated as under –
\nTe = (E&<\/p>\n
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\nCalculation of ITC in respect of said commonly used capital goods from February 2018 to June 2018
\nParticulars
\nRemark \/ calculation
\nFebruary 2018 (as per rules)
\nMarch 2018
\n(as per rules)
\nApril 2018
\n(as per rules)
\nMay 2018
\n(as per rules)
\nJune 2018
\n(as per rules)
\nTr (Rs.)
\nAs per rules
\n9,900
\n9,900
\n9,900
\n9,900
\n9,900
\n+E (Rs.)
\nAs per rules
\n5 crores
\n2.5 crores
\n4 crores
\n2 crores
\n3.5 c<\/p>\n
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\nSituation 2: when capital goods being used exclusively for effecting taxable supplies are subsequently used for common purpose
\nSimilarly, for such cases, proviso to rule 43(1)(d) has specified that in such case common credit (Tc) shall be calculated as under –
\nInput tax on such capital goods –
\n Less: 5% for every quarter lapsed from date of invoice –
\n –
\n TC = ƩA –
\nHowever, there is no need to take any ITC because ITC would have been taken on fulfillment of conditions of section 16(2) of the Act.
\nRemaining procedure is exactly the same as discussed in situation-1.
\nNote: in later part of this article, few situations have been discussed in respect of which law is silent.
\nImpact of definition of quarter
\nDefinition of “quarter” as given in section 2(92) of the Act is equally important because as per definition, quarter is not a period of three months from one date to another date but is <\/p>\n
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\nBut in the absence of any specific provisions for treatment of ITC, here following questions arises –
\n * Whether full ITC of ₹ 1,20,000 should be reversed?
\n * Whether ITC to be reversed shall be reduced by 5% per quarter or part of the quarter?
\n * Whether ITC to be reversed shall be reduced by 1\/60th per month or part of the month?
\nNote: calculation on the basis of month may differ from the calculation on the basis of quarter.
\nThis becomes relevant to mention other related provisions like rule 32 where 5% per quarter has been used. similarly, again in rule 40, 5% per quarter has been used. But in rule 44, 1\/60 per month has been used.
\nThis is matter of differences, so author reserves his views and leaves on learned members to decide on their own.
\n\tWhen capital goods being used for common purposes are subsequently used exclusively for effecting taxable supplies
\nHere actually, there is no ne<\/p>\n
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\nUndoubtedly, as per rule 43(1)(b), ITC shall be available.
\nAgain, Rule 43 is silent on whether useful life of such capital goods is also to be taken 5 years. But it becomes relevant here to mention rule 44 where law states that life of capital goods shall be taken to be 5 years.
\nSo here also, one has to decide whether –
\n * Whether full ITC to be taken?
\n * Whether ITC to be taken shall be reduced by 5% per quarter or part of the quarter?
\n * Whether ITC to be taken shall be reduced by 1\/60th per month or part of the month?
\nAuthor's view is that one must choose between b & c.
\nOther issues
\n * Section 17(3) states that exempt supplies shall include sale of land and sale of complete buildings. So now question here arises whether normal ITC shall get hit by rule 43?
\nHere one has to see that if any capital goods are being used for effecting exempt supply then only ITC shall not be available. So, one has to see if any particular capital goods were used for sale of land\/said b<\/p>\n
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