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A registered person sells used machinery on which it took input tax credit. Under Section 18(6) of the CGST Act, 2017, what must it pay?

Question and options

A registered person sells used machinery on which it took input tax credit. Under Section 18(6) of the CGST Act, 2017, what must it pay?

  1. The full credit taken, or tax on the transaction value, whichever is higher

  2. The full credit taken, or tax on the transaction value, whichever is lower

  3. The credit taken less the prescribed percentage points, or tax on the transaction value, whichever is lower

  4. The credit taken less the prescribed percentage points, or tax on the transaction value, whichever is higher

Answer and explanation

Correct answer: D - The credit taken less the prescribed percentage points, or tax on the transaction value, whichever is higher

Section 18(6) of the CGST Act, 2017 requires a person supplying capital goods on which credit was taken to pay the credit reduced by the percentage points prescribed in the rules, or the tax on the transaction value, whichever is higher. Rule 44(6) of the CGST Rules, 2017 sets the reduction at five percentage points for each quarter or part of a quarter from the invoice date.

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