ABC is in the foundry manufacturing units in Gujarat. It has no exempted product outward supply. It has procured Wind Mills from Suzlon and installed same out side Abad Suzlon have charged 18% GST Purchase of Wind Mill will be capitalised in books of accounts. The power generated will be captively consumed towards the product manufaturing. Can ABC take GST credit or not ?

ANSWER

Facts of the case:

A registered manufacturer is engaged in taxable supply having no exempt outward supply. To decide the eligibility of ITC on windmills procured and installed at the factory.

Law applicable:

(i) Sub section 19 of section 2 CGST defines capital goods as;

" '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"

(ii) Section 17(2) CGST dictates the restriction on ITC as follows;
"Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies."

Interpretation:
In the current case, the manufacturer ABC is engaged in providing outward taxable supply and no exempt supply is provided. The company has procured and installed windmills and the electricity produced there from is used at the factory premises. Since the value of windmills is capitalised in the books therefore windmills are capital goods. These capital goods are used in course and furtherance of business to provide a taxable outward supply.

Since the electricity produced from the mills is used at the factory itself and the same is not supplied outwards as an exempt supply therefore it can not be said that the company is using the windmills towards supplying an exempt supply. Thus this case does not fall under the ambit of restrictions laid under sub section (2) of section 17 CGST.

Conclusion:
ABC can claim the ITC on capital goods being windmills under section 16(1) CGST. (Reply dt. 24/09/2021)