The capital goods credit in GST is allowed u/s 16(1). However, those that are immovable see some restriction u/s 17(5)(c,d). In this article we examine what could be eligible and what may not be. The definition u/s 2(19) specifies that it is goods the value of which is capitalised in the books of account. Consequently it means that goods which are not capitalised would not be capital goods and would be considered as inputs.
Here it is assumed that well established principles of capitalisation or not would be followed and for companies additionally AS10 – Standard of Property, Plant and Machinery would be adhered to. In a composite supply of plant and machinery the services of site formation, foundation, special structures, erection and commissioning would be included in the value to be capitalised. In the erstwhile central excise regime there were a number of decisions which clarified this aspect. We would like to advert to the decision in case of Power cables, control panels, air compressors held to be Capital Goods. {Jawahar Mills Ltd Vs CCE – 2001 (132) ELT 3(SC)}. In this landmark decision, the decisions under Income Tax were also examined and it was observed that the principles laid down would be applicable.
The interesting apex courts judgement of what was a plant in Income tax are: a. Building so constructed to be an integral part of the power generation is a plant (KPC),b. Drawings are part of plant: (Elecon Engg.)and c. Sanitary fittings, pipelines are plant for a hotel based on their functionality.( Taj Mahal) The Standard AS 10 would indicate that once the particular item is having some functionality which is a part of the purpose then it could be classified as a plant and machinery.
This leads one to the question whether a clean room constructed to ensure no bacteria/ dust etc in a food processing or pharmaceutical industry; cement/ concrete foundation for the boiler, special RCC/ steel structures for cranes, lifts and elevators used in building constructed to be let out though immovable could be said to be part of plant and machinery. If so then the ITC could be eligible.
The philosophy of ITC in GST is that unless it is expressly barred or illegal or irregularly availed, the credit would be eligible. This philosophy is a carry forward of cenvat under central excise where this principle was settled by the Supreme Court in Dai Ichi Karkaria. { 1999(112) ELT (353(SC)}. The entities who build malls, let out commercial property for pure rent or as plug and play, go for factory expansion, build ports or airports may do well to examine this tax planning possibility of enhancing their ITC. This would go to reduce the cost of the project.
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