VAT ITC credit of Forklift

[Parth Bhatt]

Dear Experts

Pranams. This is Parth Bhat from Ahmedabad.I am Tax Accountant in a automobile ancilliary manufacturing company.My question is whether forklift used in material handling inside plant can be categorised as "vehicle"? My vat auditor has raised/querry nd disallowed credit. Under Guj VAT definition of Cap Goods is " plant n machinery used for manufacturing taxable goods accounted as fixed asset nt being second hand goods". Plant n machienry phrase is nt defined in act neither many judgements of guj highcourt spot light on intrpretation of plant n machinery in connection with forklift/other material handling equipment. Kindly guide me in this regard.

[YAGAY and SUN]

The term "capital goods" is defined under section 2(5) of the Vat Act in the following words:

2(5) "Capital Goods" means plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable good and accounted as capital assets in the books of account;

Thus, plant and machinery which are meant for use in the manufacture of taxable goods and which are accounted as capital assets in the books of account are capital goods.

As per judgment dated 15.7.2011 of the Honourable Gujarat High Court in the case of Reliance Industries Ltd. V/s State of Gujarat (SCA No. 11848 of 2005) = 2011 (7) TMI 1043 - GUJARAT HIGH COURT ‘crawler cranes, loaders, mobile cranes, motor grader, road roller, fork lift, chain mounted drilling machine, pipe layer and bulldozer’ are classified as motor vehicles

As per judgment dated 15.7.2011 of the Honourable Gujarat High Court in the case of Reliance Industries Ltd. V/s State of Gujarat (SCA No. 11848 of 2005) = 2011 (7) TMI 1043 - GUJARAT HIGH COURT ‘crawler cranes, loaders, mobile cranes, motor grader, road roller, fork lift, chain mounted drilling machine, pipe layer and bulldozer’ are classified as motor vehicles.

If these are motor vehicles, then, cannot be classified as Plant & Machinery. Hence, Input Tax Credit is not allowed.

[Ganeshan Kalyani]

Section 2(5) defines capital goods and capital goods is defined as say plant and machinery.

Section 11 (5)(j) of Gvat states that input tax credit is not allowed on vehicles of any type and its equipment, accessories or spare- parts (except when purchasing dealer is engaged in the business of sales of such goods).

Though forklift is not a capital goods as per section 2 (5) but it would be covered in section 11 (5)(j). Thus credit is not allowed.

[YAGAY and SUN]

The Legal Position is settled and Law is clear on this matter. Hence, in our view no ITC on Fork Lift and if availed then needed to be paid along with interest and penalty (if imposed, you may request for a lenient view ).

[Ganeshan Kalyani]

Thanks for the clear cut reply.

[YAGAY and SUN]

 Yes, we like the language of Friendship which now reflecting.

[Ganeshan Kalyani]

Really !

[Parth Bhatt]

Thanks a lot sirs@ Ganesh Kalyani & Yagya n Sun :).Both views brought grt clarity to thr issue. Thanks again.

[Ganeshan Kalyani]

Welcome sir. Thanks for giving is opportunity to answer your query.

AI Summary

Input tax credit denial: Forklifts treated as motor vehicles, credit not allowable under VAT vehicle exclusion.
Forklifts used inside a manufacturing plant have been judicially classified as motor vehicles rather than as capital goods or plant and machinery. Because VAT excludes vehicles from input tax credit, input tax credit on forklifts is not allowable. If credit was taken, it must be repaid with interest and possible penalties, subject only to any administrative leniency.