Vat on Capital Goods
This query is : Resolved
19 April 2010
We have a client who run a restuarent and this is a private company. It has two shop one is in running condition and another is in under construction. The company has purchased some Computers amounting Rs. 167200 and Vat on this is 8360 and also some Furniture Items for shop. These both assets is purchased for the shop which is underconstruction. Please give an expert advise on the following matter
1) Can we take VAT credit on Computer and Furniture purchased for our shop (underconstruction)and there is no sale on that particular shop.
2) Can we take credit on Crokcary purchased which is being write off in P& L a/c. Also tell me under which head i will show this amount capital goods or other goods.
3)Can we take credit on Diskwasher, Sink etc. used in Ktichen.
Please refer the proper sections and case laws.
1) Can we take VAT credit on Computer and Furniture purchased for our shop (underconstruction)and there is no sale on that particular shop.
2) Can we take credit on Crokcary purchased which is being write off in P& L a/c. Also tell me under which head i will show this amount capital goods or other goods.
3)Can we take credit on Diskwasher, Sink etc. used in Ktichen.
Please refer the proper sections and case laws.
CA Umesh Sharma
(Expert)
19 April 2010
Dear Please mention under which state law, i can reply in MVAT.
Message likes :
1 times
02 August 2025
Here’s a detailed response based on the **Delhi Value Added Tax Act, 2004 (DVAT Act)** for your queries related to VAT credit on **capital goods and consumables** for a restaurant business:
---
## 🧾 Query-wise Clarification (Under DVAT Act):
---
### **1) VAT Credit on Computer & Furniture (Purchased for Shop Under Construction)**
**Short Answer:** ❌ **No**, VAT input credit **cannot be claimed** until the shop **starts making taxable sales**.
**Explanation:**
* As per **Section 9(1)** of the **DVAT Act**, input tax credit (ITC) is allowed **only when goods are used for making taxable sales**.
* Since the shop is under construction and **no sale is made**, ITC **cannot be claimed yet**.
* You may be able to **defer the credit** until the shop becomes operational and starts generating taxable sales, **subject to conditions**.
> 📌 Tip: Keep records intact. Once sales begin from that shop, **capital goods like computers/furniture** may become eligible for ITC **on a prospective basis**.
---
### **2) VAT Credit on Crockery (Written off in P\&L)**
**Short Answer:** ❌ **No**, VAT input **cannot be claimed**.
**Explanation:**
* If crockery is written off in P\&L (i.e., treated as an **expense/loss**), it is **not used for making taxable sales**.
* Under **Section 9(2)(g)** of the DVAT Act, **input tax credit is disallowed** if goods are:
> “Lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.”
So, since the crockery is written off, **ITC is disallowed**.
---
### **3) VAT Credit on Dishwasher, Sink (Used in Kitchen)**
**Short Answer:** ✅ **Yes**, input credit **may be allowed**.
**Explanation:**
* These are **capital goods** used **indirectly** in providing taxable services (restaurant sales are treated as deemed sales under works contract or mixed supply, depending on tax position).
* Under **DVAT**, capital goods used in the course of business for making taxable sales may qualify for input credit.
> 🔹 However, **classification and admissibility** would depend on:
* Whether the item is capitalized
* Its nexus with taxable sales
* Use in **commercial kitchen** operations, which support sales
If these are not classified as **civil construction** items, and are integral to the running of the restaurant, **ITC can be claimed**.
---
## 🧾 Classification (Books of Accounts):
| Item | Head to Show Under |
| --------------- | ------------------------------------------------- |
| Computers | Capital Goods |
| Furniture | Capital Goods |
| Crockery | Consumables (if expensed out), else Capital Goods |
| Dishwasher/Sink | Capital Goods |
---
## 📚 Relevant Provisions (DVAT Act, 2004):
* **Section 9(1)** – Conditions for claiming ITC (must be used for making taxable sales).
* **Section 9(2)(g)** – Disallows ITC if goods are written off/lost/stolen.
* **Rule 7 of DVAT Rules** – Manner and time of claiming input tax credit.
---
### ✅ Final Summary:
| Item | ITC Eligibility | Reason |
| --------------------------------------------------- | ----------------- | ----------------------------------------------- |
| **Computers & Furniture (Under-construction shop)** | ❌ Deferred | No taxable sales yet |
| **Crockery (Written off)** | ❌ Not eligible | Written off in P\&L |
| **Dishwasher, Sink, etc.** | ✅ Likely eligible | Used in business; part of restaurant operations |
---
Let me know if you need a **draft note to submit to the VAT authority**, or a format to maintain capital goods register under DVAT.
---
## 🧾 Query-wise Clarification (Under DVAT Act):
---
### **1) VAT Credit on Computer & Furniture (Purchased for Shop Under Construction)**
**Short Answer:** ❌ **No**, VAT input credit **cannot be claimed** until the shop **starts making taxable sales**.
**Explanation:**
* As per **Section 9(1)** of the **DVAT Act**, input tax credit (ITC) is allowed **only when goods are used for making taxable sales**.
* Since the shop is under construction and **no sale is made**, ITC **cannot be claimed yet**.
* You may be able to **defer the credit** until the shop becomes operational and starts generating taxable sales, **subject to conditions**.
> 📌 Tip: Keep records intact. Once sales begin from that shop, **capital goods like computers/furniture** may become eligible for ITC **on a prospective basis**.
---
### **2) VAT Credit on Crockery (Written off in P\&L)**
**Short Answer:** ❌ **No**, VAT input **cannot be claimed**.
**Explanation:**
* If crockery is written off in P\&L (i.e., treated as an **expense/loss**), it is **not used for making taxable sales**.
* Under **Section 9(2)(g)** of the DVAT Act, **input tax credit is disallowed** if goods are:
> “Lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.”
So, since the crockery is written off, **ITC is disallowed**.
---
### **3) VAT Credit on Dishwasher, Sink (Used in Kitchen)**
**Short Answer:** ✅ **Yes**, input credit **may be allowed**.
**Explanation:**
* These are **capital goods** used **indirectly** in providing taxable services (restaurant sales are treated as deemed sales under works contract or mixed supply, depending on tax position).
* Under **DVAT**, capital goods used in the course of business for making taxable sales may qualify for input credit.
> 🔹 However, **classification and admissibility** would depend on:
* Whether the item is capitalized
* Its nexus with taxable sales
* Use in **commercial kitchen** operations, which support sales
If these are not classified as **civil construction** items, and are integral to the running of the restaurant, **ITC can be claimed**.
---
## 🧾 Classification (Books of Accounts):
| Item | Head to Show Under |
| --------------- | ------------------------------------------------- |
| Computers | Capital Goods |
| Furniture | Capital Goods |
| Crockery | Consumables (if expensed out), else Capital Goods |
| Dishwasher/Sink | Capital Goods |
---
## 📚 Relevant Provisions (DVAT Act, 2004):
* **Section 9(1)** – Conditions for claiming ITC (must be used for making taxable sales).
* **Section 9(2)(g)** – Disallows ITC if goods are written off/lost/stolen.
* **Rule 7 of DVAT Rules** – Manner and time of claiming input tax credit.
---
### ✅ Final Summary:
| Item | ITC Eligibility | Reason |
| --------------------------------------------------- | ----------------- | ----------------------------------------------- |
| **Computers & Furniture (Under-construction shop)** | ❌ Deferred | No taxable sales yet |
| **Crockery (Written off)** | ❌ Not eligible | Written off in P\&L |
| **Dishwasher, Sink, etc.** | ✅ Likely eligible | Used in business; part of restaurant operations |
---
Let me know if you need a **draft note to submit to the VAT authority**, or a format to maintain capital goods register under DVAT.
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