Capital goods (Sec 2(19) of CGST act)

Section 2(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.

Input Tax Credit on Capital Goods

To avail input tax credit for the Capital Goods the following conditions, in addition to conditions as stated under section 16(2) of the CGST Act, are to be fulfilled.

1. The Capital Goods has been capitalised in books of account of the person and
2. The Capital Goods are used or intended to be used in the course or furtherance of business.
3. The conditions as stated under section 16(2) of the CGST Act are as under:

3.1 The registered person is in possession of Tax Invoice;

3.2 The registered person has received Capital Goods;

3.3 The tax charged on such capital goods has been paid and

3.4 The GST Return has been filed in regard of such of Capital Goods by the Supplier.

4. The further condition as stated in section 16(3) is that 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.
5. Blocked Input Tax Credit: Input Tax Credit is blocked on Motor Vehicles, Vessels and Aircrafts subject to exceptions as per section 17(5) of the CGST Act.
6. Total amount of Input Tax Credit is allowed on purchase of capital goods. It is not like with provisions of VAT, Service Tax etc. where input Tax Credit was allowed in instalments year wise.

Treatment of Availed Input Tax Credit on Sale of Capital Goods

In case of supply of used Capital Goods on which input tax credit has been availed, we should consider provisions of section 18(6) of the CGST Act read with rule 44(6). The higher amount of tax shall be paid out of tax charged on transaction value or pro rata input tax credit pertaining to unused period. The following example would help for more clarification in regard of this matter.

Input Tax Credit not allowed on Capital Goods

The Input Tax Credit is not allowed on Capital Goods on following circumstances:

1. If the Capital Goods are not capitalised in the books of account.
2. If the Capital Goods are purchased for non business purpose.
3. If the Capital Goods are purchased to be used exclusively for exempt supply.

Circumstances when availed Input Tax Credit against Capital Goods shall be paid.

The Registered Person shall have to pay input tax credit against availed input tax against purchase of Capital Goods in following cases:

1. When the Registered Person shifts from regular registration to Composition Scheme and
2. When the Registered Person gets his registration cancelled.