Reversal of ITC taken in respect of Capital Goods

[BipadBhanjan dixit]

Our client has a Rolling Mill (RM)plant, supplies TMT to customers and also have captive consumption.Relevant ITC has been appropriately taken on Rolling Mills during the construction of such RM as per the Laws.

Query:

1-Whether, Rule 43 of the CGST Rule,2017 is applicable in this case because of the captive consumption?

2- whether the input tax credit in respect of Capital Goods used in Rolling Mill will be reversed to the extent of qty. captively consumed?

3-Whether Input tax credit in respect of Capital Goods consider only for goods or both goods and service, if needs to be reversed?

[KASTURI SETHI]

Query-wise reply is as under:-

1. Yes but scenario is different.

2.No. As per Board's circular no.79/53/2018-GST dated 31.12.18 in para no.9(b) :-

" There is no distinction between intermediate goods or services and final goods or services under GST. Inputs have been clearly defined to include any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Since coal is an input used in the production of aluminum, albeit indirectly through the captive generation of electricity, which is directly connected with the business of the registered person, input tax credit in relation to the same cannot be denied."

If your final product is taxable, no reversal is required on account of captive consumption.

3. No reversal required. As in point no.2 above.

[BipadBhanjan dixit]

Thanks you sir for your opinion. I need some more clarification to point no.1.

In the case of captive consumption of final output i,e TMT is used for construction of immovable property such as boundary wall, internal road etc. within the plant. Whether Rule-43 is applicable on the given senario?

Rule 43 is applicable only when Sec-17(1) and 17(2) of the CGST Act,2020 attracts, which is absent in the present case. In the present case, final goods are neither used for " other purposes other than business purpose 17(1)" nor it is a " exempted supply" 17(2). So in my view , rule 43 is not applicable in the present case, if i am not wrong.

Please clear my understanding sir.

[Bhavika Chothani]

There is no need to reverse the input tax credit in this case

[Kashish Gupta]

Dear Bipad Bhanjan Dixit Ji

Input tax credit availment on construction of boundary walls of factory and internal roads of factory is not a subject matter to be considered in captive consumption, standalone. As per explantion to section 17(5) of the CGST Act, 2017, "plant and machinery" means apparatus, equipment and machinery but not internal roads and boundary walls. However, if the civil structure is constructed merely to provide structural support to the plant and machinery, then it would be covered within the expression "plant and machinery".

Therefore, in my view, boundary walls and internal roads forms part of 'immovable property' and credit thereon is not admissible under section 17(5)(c) of the CGST Act, 2017. It should have been capitlaised in books of account.

AI Summary

Input tax credit reversal for captive consumption: taxable final goods generally do not require ITC reversal under GST rules. Rule 43 applies only where the conditions of Section 17 (use for non-business purposes or exempt supply) are met; absent those conditions, ITC on capital goods used in making taxable final goods consumed captively need not be reversed. Administrative guidance treats inputs used indirectly through captive processes as eligible for ITC when the final product is taxable. Civil structures like internal roads and boundary walls fall outside 'plant and machinery' and credit for such immovable property is not admissible and should be capitalised unless they solely support plant and machinery.