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GST liability on cancellation of registration in two situations

Ramachandran S (Chartered Accountant) (717 Points)

04 March 2023

A person wants to cancel GST registration due to discontinuance of his profession. He has some capital goods on which input tax credit has not been claimed at all. He also does not sell such goods to anybody but will treat it as personal assets. What is the ‘transaction value’ on which he has to pay output tax liability on deemed supply pursuant to Schedule II to the CGT Act on GST cancellation? What will be the answer, if he wants to cancel GST registration not due to discontinuance of profession but due to the fact that there will be no inter-state supply of professional services and intra-state supplies will be below Rs.20 lakhs? Thanks.

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10 Replies

CA Mayank A Jain (Chartered Accountant in Practice) (1260 Points)
Replied 04 March 2023

In both cases, there is no requirement to pay any GST on the capital goods as he is not supplying such capital goods. Further, the deeming fiction as provided in schedule I would not apply as you have not taken any ITC at the time of purchase of capital goods.

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Ramachandran S (Chartered Accountant) (717 Points)
Replied 04 March 2023

@ Mayank Gadiya Thanks. However, as per clause 4(c) of Sch II, if a person ceases to be a taxable person, the business assets are deemed to be supplied by him. That's why I have raised this issue.

Ramachandran S (Chartered Accountant) (717 Points)
Replied 05 March 2023

@ Mayank Gadiya. I have now resolved the issue raised by me. A study of Form GSTR-10 reveals the following. On both occasions mentioned by me, the output tax liability on capital goods should be calculated on their value and for this purpose the value should be the invoice value reduced by 1/60th per month or part thereof from the date of invoice/purchase taking useful life as five years . This is stated in Instruction 3 for GSTR-10. Thanks.

Ramachandran S (Chartered Accountant) (717 Points)
Replied 05 March 2023

@ Mayank Gadia Still I am not clear. The wording in Form GSTR-10 gives an impression that only if we avail ITC on capital goods, GST is payable on cancellation of registration. But section 29(5) of CGST Act does not give this impression.

CA Mayank A Jain (Chartered Accountant in Practice) (1260 Points)
Replied 07 April 2023

Both the provisions have to be interpreted harmoniously.

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Ramachandran S (Chartered Accountant) (717 Points)
Replied 07 April 2023

@ Mayank A Jain. Sir, what is your interpretation? Kindly state.

CA Mayank A Jain (Chartered Accountant in Practice) (1260 Points)
Replied 07 April 2023

Schedule II does not deem any transaction to be a supply. It is merely for classification of supply i.e., whether it is supply of goods or services.

S-29 of the CGST Act provides as follow:

Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed

Where ITC is not availed, then no credit is held in the capital goods which are owned by the proprietorship concern. Hence there is no requirement to pay any amount.

Further, the above provision would only trigger where benefit has been taken. That is the reason which I have to consider the period of 5 years and see the period which is remaining. If credit itself is not taken, benefit itself is not taken, ten the question of paying back does not arise.