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TMI BlogServices on capital account whether input services or capital goodsX X X X Extracts X X X X X X X X Extracts X X X X ..... Services on capital account whether input services or capital goods X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are used or intended to be used in the course or furtherance of business. In many instances, businesses procure certain services-such as architectural fees, design and engineering services, license fees, etc.-which are directly attributable to the creation or installation of plant and machinery. These service-related costs are often capitalized along with the value of the plant and machinery i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the books of accounts. The issue arises regarding the treatment of such capitalized services for the purpose of Input Tax Credit (ITC) availment or reversal. Specifically: * Whether such services, though capitalized as part of plant and machinery, should be treated as 'input services' or as 'capital goods' under the GST framework; and * Accordingly, whether ITC on such servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces should be subject to reversal under Rule 42 (applicable to input and input services) or under Rule 43 (applicable to capital goods). Additionally, Para 6(a) of Schedule II to the CGST Act deems works contracts as a supply of services. In cases where a Lump Sum Turnkey (LSTK) contract is awarded-for example, for the construction of a large industrial plant-the entire scope of the contract (inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive of both goods and services) is considered as a works contract service. In such cases, the entire value of the LSTK contract is capitalized as part of the plant and machinery. The clarification sought is: * Whether ITC on such LSTK contracts, being deemed as works contract services and capitalized in the books, should be treated as input services or capital goods for the purpose of ITC av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailment and reversal under Rules 42 and 43 of the CGST Rules. Reply By Shilpi Jain: The Reply: This is a question like plant AND machinery and plant OR machinery u/s 17(5) (as brought out during Safari Rretreats case) which will have to get answered by the Courts. The answer to this can go either way. Though, the consideration of this either way may not have huge ramifications. Since reversals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are required under both the rules on similar considerations (i.e. revenue) but surely there would be a difference. If some business has a huge ramification and requires an answer to this, could consider making a representation to the GST Council to seek a clarification, which may or may not be as per legal interpretation, but would at least give some clarity to businesses and save from departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dispute to some extent.
Though this view is surely an argument to come up in future in the Courts. X X X X Extracts X X X X X X X X Extracts X X X X
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