Pre operating expenses

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sanjay kubal (Querist)
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17 February 2012 Service charges paid for procurement of EPCG License - (for machinery which is to be Imported under EPCG License)

Whether such type of Service charges can be capitalized

CA Prashant Gupta

CA Prashant Gupta (Expert)
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17 February 2012 Yes, you can capitalised such cost as the cost is related to bring the machine in present condition.

CA Sumat Singhal

CA Sumat Singhal (Expert)
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17 February 2012 READ IN TOTALITY
The EPCG scheme allows import of capital goods for pre production, production and post production at 3% Customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported to be fulfilled over a period of 8 years reckoned from the date of issuance of the authorisation.
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The cost of an itemof fixed asset comprises its purchase price, including
import duties and other non-refundable taxes or levies and any directly
attributable cost of bringing the asset to itsworking condition for its intended
use; any trade discounts and rebates are deducted in arriving at the purchase
price. Examples of directly attributable costs are:
(i) site preparation;
(ii) initial delivery and handling costs;
(iii) installation cost, such as special foundations for plant; and
(iv) professional fees, for example fees of architects and engineers.
there is no such interpretation of directly attributable cost. but examples are given and service charges paid for epcg for acquiring FA is no where associated with it.
Further EPCG is acquired for reducing capital cost.
i think this is a type of manufacturing exp not to be capitalized.
other opinions are invited.

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