TMI Blog2021 (2) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Thus any goods which is not capitalized in the books of accounts of the person claiming ITC shall not be treated as capital goods. Circular No. 79/53/2018-GST, dated 31-12-2018 has clarified that if the goods whose value is not capitalized in the books of accounts and the expenditure which has been charged as revenue expenditure in the books of accounts cannot be treated as capital goods and is to be treated as inputs. These facts has to be verified from the books of accounts. Looking to the nature of business of the appellant i.e. mining and selling of silica sand, it is found that various tools and parts/spares of the machinery are required replacement on frequent basis and as long as these are not capitalized in their books of accounts and has been charged as revenue expenditure in their books of accounts will be treated as inputs in terms of Section 2(59) of the CGST Act, 2017. The appellant has also submitted declaration dated 27-6-2018 that the claim does not include any amount of goods and service tax paid on procurem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deficiencies for which deficiency memo dated 13-8-2018 under GST RFD-03 was issued to the appellant in the matter and the same was replied along with the copies of demanded documents by the appellant which was received on 17-5-2019. On further scrutiny of the records and invoices on the strength of which the appellant has claimed input tax credit, it has been found that the said ITC have been availed on input services and capital goods which is not included in Net ITC for the purpose of refund amount as per Rule 89(5) of the CGST Rules, 2017 as amended vide Notification No. 26/2018-C.T., dated 13-6-2018. 2.3 Accordingly, the adjudicating authority issued a show cause notice dated 24-5-2019 to the appellant proposing therein rejection of refund of ₹ 28,19,021/-. The appellant did not avail the opportunity of personal hearing. Further, the adjudicating authority find that no documents relating to their input rather they have submitted copies of documents which pertain to input service and capital goods. Since, the ITC amount on input service and capital goods is not included in the Net ITC for the purpose of refund amount as per Rule 89(5) of the CGST Rules, 2017 as amende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of goods and services) x Net ITC. Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services. Explanation. - For the purposes of this sub-rule, the expressions - (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and (b) Adjusted Total turnover shall have the same meaning as assigned to it in sub-rule (4). - that in light of the above provisions, the appellant filed eight refund application(s) separately, along with requisite documents/details including invoices, for the impugned period, of the input tax credit availed towards inputs and input services during the said period pertaining to the accumulation of input tax credit on account of rate of tax on inputs and input services being higher than the rate of tax on output supplies ( inverted duty structure ) as provided in the GST law vide Section 54(3)(ii). Month-wise refund claimed during the impugned period has been tabulated below for your easy reference : S. No. Month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, 2019. It may be noted that reduced refund claim after removing refund claim of input services, was computed as ₹ 25,61,699/- (IGST ₹ 17,54,255/-, CGST ₹ 4,03,722/- and SGST ₹ 4,03,722/-). Month-wise recomputed refund claim has been tabulated below : S. No. Month Refund IGST CGST SGST Total 1. Jul., 17 - - - 2. Aug., 17 1,60,057 21,958 21,958 3. Sep., 17 2,87,716 19,017 19,017 4. Oct., 17 0 53,688 53,688 5. Nov., 17 3,10,870 34,149 34,149 6. Dec., 17 28,330 21,053 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider the same as capital goods in terms of Section 2(19) of CGST Act. It is equally important to note herewith that the Income-tax Act, 1961 and accounting principles provides guidelines/provision(s) for considering any goods to be treated as capital goods or which requires capitalization in the books of accounts. Therefore, the question whether a goods requires capitalization or not in the books of accounts, is dealt with the Income-tax Act, 1961 read with accounting principles. Accordingly, if any goods is capitalized in the books of accounts as per Income-tax Act, 1961, will qualify as capital goods in terms of Section 2(19) of CGST Act. that the Appellant submits that in the present case, the tools or parts/spares of the machinery is replaced due to wear and tear. Such tool/parts do not value add to the machinery and thus is not liable to get capitalize in the books of accounts of the Appellant in terms of Income-tax Act, 1961 and/or accounting principles. Therefore, once such goods are not capitalized in the books of accounts as per Income-tax Act, 1961, the same would not qualify as capital goods in terms of Section 2(19) of CGST Act and hence would be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are replaced during the impugned period along with the refund application. Besides, the Appellant uses gas for operating plant and machinery and certain printing and stationery for daily works, for which the Appellant has filed the refund. Invoices of the same were also submitted to the Department. that the Appellant submits that without analyzing/examining the nature of invoices and its treatment in the books of accounts, the Department has wrongly alleged that the invoices are relating to capital goods or input services and not of inputs. Further, the Department has also erred in alleging that the Appellant has considered ITC while computing the refund claim under Rule 89(5), whereas the Appellant vide its letter dated April 30, 2019 and May 14, 2019 has explicitly stated that the Appellant has withdrawn/reduced the refund claim to the extent claimed towards input services and a new refund computation sheet with reduced refund claim was submitted wherein only ITC on inputs was considered. that in light of the above submissions, it is ample clear that the Department has clearly overlooked the invoices/documents/account-ing treatment of the expenses and hence could not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Govt. vide Circular No. 79/53/2018-GST, dated December 31, 2018 they recomputed the refund claim and removed the claim towards input services and submitted the revised refund computed sheet along with invoices relating to only inputs vide their letter dated April 30, 2019 and after removing the refund claim of input services the revised refund claim was computed as ₹ 25,61,699/- (IGST ₹ 17,54,255/-, CGST ₹ 4,03,722/- and SGST ₹ 4,03,722/-). Thus, appellant has reduced their claim to ₹ 25,61,699/- and the revised claim is to be treated for ₹ 25,61,699/- only. 6. The issue involved in the present case is that whether the goods on which credit is accumulated and refund is claimed is input or capital goods , the appellant has submitted declaration dated 27-6-2018 regarding refund claim filed for the period July, 2017 to March, 2018 that it does not include any amount of Goods and Services Tax paid on procurement of inputs, which has been capitalized or treated as expense in their books of accounts. They also declared that refund of input tax credit on account of input services and capital goods has not been claimed in their revised computation wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot capitalized in the books of accounts of the person claiming ITC shall not be treated as capital goods. 11. Further, the C.B.I. C. has also issued the clarification on the issue of interpretation of inputs in the context of refund claims vide Paras 12 and 13 of the Circular No. 79/53/2018-GST, dated 31-12-2018 which read as under :- 12. It has been represented that on certain occasions, departmental officers do not consider ITC on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items, as part of Net ITC on the grounds that these are not directly consumed in the manufacturing process and therefore, do not qualify as input. There are also instances where stores and spares charged to revenue are considered as capital goods and therefore the ITC availed on them is not included in Net ITC, even though the value of these goods has not been capitalized in his books of accounts by the claimant . 13. In relation to the above, it is clarified that the input tax credit of the GST paid on inputs shall be available to a registered person as long as he/she uses or intends to use such inputs for the purposes of his/her busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged as revenue expenditure in the books of accounts cannot be treated as capital goods and is to be treated as inputs. These facts has to be verified from the books of accounts. 14. I find that looking to the nature of business of the appellant i.e. mining and selling of silica sand, various tools and parts/spares of the machinery are required replacement on frequent basis and as long as these are not capitalized in their books of accounts and has been charged as revenue expenditure in their books of accounts will be treated as inputs in terms of Section 2(59) of the CGST Act, 2017. I find that appellant has also submitted declaration dated 27-6-2018 that the claim does not include any amount of goods and service tax paid on procurement of inputs, which has been capitalized or treated as expense in their books of accounts. 15. In view of the definition of inputs as provided under Section 2(59) of CGST Act, 2017 and the definition of capital goods as provided under Section 2(19) of CGST Act, 2017 and clarification issued by the Board vide Circular No. 79/53/2018-GST, dated 31-12-2018 and Circular No. 125/44/2019-GST, dated 18-11-2019, the goods on which the credit is accumulat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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