DEPRECIATION ON CAPITAL GOODS WITH GST COMPONENT

[Sadanand Bulbule]

Dear experts

Section 16[3] of the CGST Act reads as under:

(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed.

It means, to claim ITC, registered person has to claim depreciation on the value of the capital goods purchased without including the GST paid.

In view of this , what would be implications on Section 17[5][d] in terms of recent judgement of Hon'ble Supreme Court in Safari Retreat case?

My understanding is, taxpayers falling under 16[3] cannot claim the benefit of " ITC " under Section 17[5][d].

There are some such instances claiming both depreciation and ITC without anticipating backfire from the department.

Your validations plz.

AI Summary

Depreciation vs Input Tax Credit: claiming both on GST component is generally barred; limited recent ruling exceptions may apply.
Where a taxpayer claims depreciation on the tax element of the cost of capital goods and plant and machinery under income tax law, input tax credit on that tax element is disallowed; taxpayers must therefore either claim depreciation (including GST in the depreciable base) and forgo ITC on the tax component, or avail ITC and not claim depreciation on that tax element. Post ruling arguments permit ITC for items qualifying as plant or machinery under a functionality test, but this raises factual and accounting distinctions about capitalisation, movability, and construction related supplies and entails litigation risk.