ITC admissibility on inputs used for manufacture of capital goods

[Satish Talnikar]

Dear Sirs,

Where inputs and inputs services are procured for manufacture of solar panels which are capitalized as assets in the books of accounts. Such solar panels are installed at the premises of client for supply of electricity to the client. As per the contractual agreement, the client is required to keep a security deposit with the solar panel manufacturer for 10 years. During this period, the solar panel manufacturer shall raise monthly bill for the number of units of electricity generated and supplied through the solar panel. Supply of electricity is exempted from payment of GST in terms of Notification 1/2017-CGST (Rate) dated 24.6.2017 (S.No. 104). After a period of 10 years, the solar panel system will be sold to the client and the security deposit amount shall be treated as sale value of the solar panel. Whether, the solar panel manufacturer is required to reverse the ITC on inputs and input services used for manufacture of solar panel which is used for supply of exempted goods? Whether such ITC can be utilized for payment of GST after 10 years when such solar panel is sold to the client. Whether for such sale, the written down value (WDV) of the solar panel shall be considered as the transaction value for payment of GST?

Requesting for valued opinion.

Thanks and regards!

AI Summary

Clarification on ITC reversal for solar panel supplies exempt from GST and its applicability upon sale after 10 years. A query was raised regarding the admissibility of Input Tax Credit (ITC) on inputs used for manufacturing solar panels, which are capitalized as assets and installed for clients to supply electricity. The supply of electricity is exempt from GST, and after 10 years, the panels are sold to the client with the security deposit considered as the sale value. The query sought clarification on whether ITC needs to be reversed for exempt supplies and if it can be used for GST payment upon sale. The response suggested that ITC eligibility depends on the contract terms, particularly whether it specifies a sale of equipment or electricity.