On 25th August, M/s Mehta & Mehta, a registered supplier of taxable goods located in Bengaluru (Karnataka), purchased one machine for 12,39,000…

(a) As per section 18(6) of the CGST Act, 2017, if capital goods/ plant and machinery on which ITC has been taken are supplied (outward) by a registered person, he must pay an amount that is higher of the following: (a) ITC taken on such goods reduced by 5% per quarter or part thereof from the date of issue of invoice for such goods or (b) tax on transaction value of such outward supply determined under section 15 of the CGST Act, 2017. Accordingly, the amount payable on supply of machinery by M/s Mehta & Mehta shall be computed as follows: Particulars Amount (₹) ITC taken on the machinery (₹ 12,39,000 × 18/118) 1,89,000 Less: Input tax credit to be reversed @ 5% per quarter for the period of use of machine (i) For the previous year = (₹ 1,89,000 × 5%) × 3 quarters 28,350 (ii) For the current year = (₹ 1,89,000 × 5%) × 2 quarters 18,900 Amount required to be paid by adding the reversal amount to the output tax liability) (A) 1,41,750 Duty leviable on transaction value (₹ 7,50,000 × 18%) (B) 1,35,000 Amount payable towards disposal of machine is higher of (A) and (B) 1,41,750 Thus, M/s Mehta & Mehta is required to pay an amount of 1,41,750 at the time of sale of machinery by adding the same to the output tax liability. ** In the above solution, amount payable towards disposal of machine has been computed on the basis of rule 40(2) of the CGST Rules, 2017, i.e. ITC to be reversed for the period of use of capital goods/machine has been computed @ 5% for every quarter or part thereof from the date of the issue of invoice. However, the said amount can also be computed in accordance with rule 44(6) of the CGST Rules, 2017, i.e. ITC involved in the remaining useful life (in months) of the capital goods/ machine can be reversed on pro-rata basis, taking the useful life as 5 years.