Can a taxpayer avail ITC on capital expenditure where construction period of plant & machinery is more than 2 years and no production has started and accounting of the same is done in capital work-in-progress account ?
According to section 2 (19) of the CGST Act Capital Goods means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
Considering the fact that the accounting is done in Capital WIP, there may be a contention that the goods are not technically capitalized or recognized.
The person purchasing such capital goods would still be eligible to claim ITC on them since the definition of ‘input tax’ under section 2(62) means the taxes charged in respect of supply of goods or services or both made to a registered person and thus applies even to goods that are not capitalized.
When the plant and machinery is under construction and no production has been commenced, it cannot be said that the same is being used for making outward supplies but at the same time there exists an intention to use in the course or furtherance of business.
Capitalized value of capital goods may include services as an incidental component of a composite supply. The expression ‘capital goods’ is the identity of what is capitalized although it may come into existence along with services. There is no basis to carve out service value embedded in the capitalized value if they principally comprise only of capital goods.
It needs to be noted that CWIP may involve credits which are available immediately on their receipt (of the goods and their invoice). Therefore, one may not have to defer credit until actual capitalization in the books in view of the time restriction for taking of credit being reckoned from ‘date of invoice’ and not from the ‘date of capitalization’.
GST law does not introduce these fine distinctions between ‘yet to be’ capitalized goods and ‘already’ capitalized goods. Any delay in capitalization can prove costly due to the time limit for taking of credit. This is true for long term contracts involving setting up of plants as in the instant case.
Hence ITC on Capital Work in Progress of Plant & Machinery may be availed even before capitalization.
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