ITC on Capital work in progress

[ROHIT GOEL]

Dear Sir,

One of our clients is under process of fabricating a machinery and since it is a longer term project, it is held in CWIP as on 31.03.2020. The machinery involved use of imported materials on which IGST was paid at port, however, the client has taken the view that GST ITC on same is not available until capitalisation of asset and therefore GST paid is capitalised as 'Deferred GST Input' and shown as a separate asset and neither is GST claimed in GSTR-3B.

Section 2(19) of CGST Act 2017 defines capital goods as:

'(19) “capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;'

However, when asset is capitalised as CWIP in Balance sheet would it not amount to capitalisation and make assessee eligible for Input claim? Or he has to wait till completion of project to claim GST input?

Please provide your expert opinions in light of both section 2 as well as section 16 of CGST Act 2017?

[KASTURI SETHI]

My views are as under :-

1. No need to wait for completion of the project. Note the words, "intended to be used" mentioned in the definition of 'Capital Goods'. Section 16 of CGST Act also talks of the phrase, "intended to be used."

2. See Rule 43 (5) of CGST Rules, 2017

Q No.3 When asset is capitalised as CWIP in Balance sheet would it not amount to capitalization and make assessee eligible for Input Tax Credit claim on Capital Goods ?

3. Answer : Yes. Books of account are statutory records. You are well aware that Balance Sheet is based on books of account.

AI Summary

Input Tax Credit on capital goods is claimable once the asset is capitalised in books, not only after project completion. GST paid on materials for machinery held as Construction Work in Progress and capitalised in the taxpayer's books of account constitutes capitalisation of capital goods, permitting claim of Input Tax Credit without waiting for project completion; the statutory definition's phrase 'intended to be used' and corresponding provisions of the CGST Act and Rules support this position, and the Balance Sheet/books of account serve as the evidentiary record.