The definition of capital goods has undergone a substantial change in the revised GST Law. The definition of capital goods under revised GST Law is given under section 2(19) which states that capital goods means goods, the value of which is capitalised in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business.

As contrast to the above definition, the definition of capital goods under earlier GST law was similar to that given under Cenvat Credit Rules, 2004. The earlier definition was very specific as compared to the present definition which has a very wide scope. As seamless credit is proposed under GST regime, the definition given under revised law is appreciated and welcomed.

According to the revised GST Law, goods that are capitalised in the books of accounts will be considered as capital goods. This will have the effect that certain goods will be considered as inputs even when they are used with capital goods if the said goods are not capitalised in the books of accounts. Although, there will be less impact as except for pipelines and telecommunication towers, full credit is available for all goods including capital goods.

The treatment of ITC on capital goods is very important to be taken care since it would have long term Tax implications.

15 Points to be taken care while availing the credit of GST paid for capital goods :

1. In GST, the credit can be availed on the capital goods provided the depreciation of tax component is not claimed.

2. ITC of capital goods can be availed fully if the capital goods are used only for the supply of taxable goods or services.

3. ITC of capital goods cannot be availed fully if the capital goods are used only for manufacturing or selling or providing exempt goods or services or used for personal purposes.

4. If the capital goods are used partly for taxable supplies and partly for exempted supplies, then the credit of the capital goods related to the particular month should be reversed which is attributable to exempt supplies on a proportionate turnover basis.

The useful life of the capital good is deemed to be 5 years for this purpose. Therefore, the credit attributable to a particular month would be the total ITC availed of the particular capital goods divided by 60 months (5 years) and the credit attributable to exempt supplies should be reversed proportionate to exempt turnover of the month.

Credit attributable to a particular month {Tm} = Total ITC availed on the capital good
60

Credit attributable to exempt supplies {Te}= Tm * Exempt turnover in the month
Aggregate turnover of the month

Therefore, the Te amount should be reversed along with interest.

5. ITC of the capital goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples, or used for personal consumption cannot be availed. Section 17(5) of CGST Act

6. ITC of the capital goods held on stock on the day before taking registration under GST cannot be availed.

Eligibility of credit of certain particular capital goods under GST:

7. Works contract services and construction services:

The goods/ services used for the construction of buildings for business purposes including works contract services are restricted if such buildings are capitalized in the books of accounts [for example renting/ leasing of buildings].

8. Plant and machinery:

However, plant and machinery are excluded from construction and works contract services in the case of eligibility of credit. It is defined as apparatus, equipment, and machinery fixed to earth by foundation or structural support and includes such foundation and structural supports. However, it excludes land, building or any other civil structures; telecommunication towers; and pipelines laid outside the factory premises. The credit of plant and machinery would be available if —

a. Depreciation on the tax component of such plant and machinery is not claimed in the Income Tax act; and

b. Such plant and machinery are used in effecting taxable supplies in the course or furtherance of business.

9. Motor vehicles: The credit of cars, bikes, etc., has been restricted under GST. However, ITC of motor vehicles for transportation of persons having approved seating capacity of more than 13 persons (including the driver) can be availed.

For example, The ITC of the buses or vans used for the conveyance of employees of a company for official purposes can be availed, as the seating capacity is more than thirteen (13).

10. In cases, where the seating capacity is 13 persons or less, then the credit would be available only when such vehicles are used for –

đź‘ŤSupply of motor vehicles: That is, a car dealer can avail the credit of all the motor vehicles which he buys and sells in the course of business;

đź‘ŤSupply of passenger transportation service: A person engaged in supplying transportation services to passengers [auto rickshaws, cabs] can avail the credit of motor vehicles which he uses to provide such services;

Imparting training services on driving such motor vehicles: A car driving trainer or instructor can avail the credit of cars in which he trains people; or

â™  Transportation of goods: It should be noted that the credit would be available even if such vehicles [lorries] are used to only transport goods from the factory to factory outlets. In this case, it is not essential that such vehicles should be used for supplying goods transportation services.

11. Vessels and aircraft: Similarly, the credit of vessels and aircraft would be available only if they are used for:

â™  Supply of such vessels or aircraft;

Transportation of passengers: For example, Air travel services;

Imparting training on navigating such vessels or flying such aircraft; or

Transportation of goods.

12. Eligibility of ITC in case of few common capital goods are as follows:

Type Of Asset Eligibility Remarks
Air conditioner,  electrical fittings, bulbs, CCTV etc Yes If used in the business premises, like office or factories, etc. However If capitalized to buildings in the books of accounts, then credit is restricted
UPS, generator, transformer Yes If used in the business premises, like office or factories, etc
Furniture Yes If used in the business premises, like office or factories, etc
Computer and related machines like printers, scanners, etc Yes If used in the business premises, like office or factories, etc
Plant and machinery Yes If used in the supplies of taxable goods or services
Software Yes If used for official purposes
Goods for construction of buildings No If capitalized to buildings in the books of accounts

Miscellaneous:

13. A composition dealer and a non-resident taxable person cannot avail credit of capital goods. However, a non-resident taxable person can avail the credit of tax paid on the import of such capital goods.

14. In the case of a composition dealer converting to the regular registered person or when the exempted goods become taxable, for which the capital goods are used, ITC of capital goods held on the preceding day to such conversion or change in rate can be availed. Full credit cannot be availed. The ITC should be reduced at 5% per quarter (or part thereof) from the invoice date till the date of conversion or change in rate. Two events have been envisaged here.

15. If a person registered under GST under the regular scheme, gets converted to composition scheme, or the goods or services for which the capital goods are being used, become exempt, ITC of the capital goods is not eligible. Therefore, the credit should be reversed.

While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same. The views expressed are personal opinion, compilation and is no way, to be used for any legal opinion, matters

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One Comment

  1. devesh_015 says:

    Dear Sir,
    My business is supply of building material and i have purchase Truck for supply of building material supply. can i claim ITC on purchase of Truck or not. Also suggest about itc on repair, tyre purchase for truck.

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