Captive Consumption, Goods and Services Tax - GST

[umeshkumar jhawar]

Dear Experts

1. What will be tratment for ITC availed on manufactring of Finished Goods used for Captive Consumption for Factory Building Construction.

2. What will be tratment for ITC availed on manufactring of Finished Goods used for Captive Consumption for Plant & Machinery Installation

3. Whether we should raise self Invoice mentioning Basic Amount of Finished Goods?

Posts / Replies

[KASTURI SETHI]

There is no concept of captive consumption in CGST Act as the taxable event is 'supply' instead of 'manufacture'.

[DR.MARIAPPAN GOVINDARAJAN]

I am also on line with Shri Kasthuri Sethi.

[umeshkumar jhawar]

Dear Experts

I agree with your opinion.

What will be book entry In case we have used finished goods for Installation of Plant & Machinery?

Whether we should make self Invoice and If we prepare self Invoice Credit effect of same to be given to Sale Account?

[KASTURI SETHI]

Self - supply is taxable under GST.

Issue self-invoice and pay GST.

Transaction value should not be less than open market value.

Emphasis is laid on the words, 'all forms of supply' and 'such as' used in Section 7 of CGST Act.

[Amit Agrawal]

The activities specified in Schedule I, made or agreed to be made without a consideration is indeed a supply u/s 7(1)(c) of the CGST Act, 2017. Similarly , there is also Section 7(1)aa) there, also, job-work related provisions relating of sending raw material / capital goods which are not returned back within prescribed time etc.

But, subject issue under discussion is not covered any of such 'deemed supply' provisions under GST as here is no such mention in the query raised and the query only talks about captive consumption.

Hence, I do not think that there is any concept like self-supply (goods / services supplied to oneself / same GSTN) in given situation under discussion here (i.e. captive consumption).

Consequently, there is no need to raise any tax-invoice / self-invoice and discharge any GST as outward supply in my humble view.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Even famous experts in GST differ on this issue.

[Amit Agrawal]

For any supply u/s 7(1)(a) of the CGST Act, 2017, there had to be to be at-least two persons involved (i.e. one, the supplier and other, the recipient). The 'consideration' as referred in Section 7(1)(a) read (with Section 2(31)) can be given only by the recipient of supply or by any other person (i.e. person other than the supplier).

Without any deeming friction (such as, for example, Serial No. 2 from Schedule - I, Section 7(1)(aa) read with Explanation given thereunder), there cannot be any supply any goods / services by the supplier to oneself.

To put it differently, deeming frictions (such as, for example, Serial No. 2 from Schedule - I, Section 7(1)(aa) read with Explanation given thereunder) actually shows that in normal circumstances (i.e. barring exceptions created through deeming friction), there had to be at-least two persons involved (i.e. one, the supplier and other, the recipient) for any supply to be take place.

And I see there is no deeming friction under current GST law to treat subject captive consumption of finished goods under discussion here as 'supply'.

Consequently, there is no legal provision under current GST law which requires the tax-payer to raise any tax-invoice / self-invoice against captive consumption of finished goods under discussion here and discharge any GST as outward supply in my humble view.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Dear Querist,

You have said that you are manufacturing 'finished goods' which in-turn are used by you for captive consumption for either Factory Building Construction or Plant & Machinery Installation. And your main query - presumably - is with regards to eligibility of ITC against goods / services used for manufacturing these finished goods.

Request you to elaborate why are these 'finished goods' please.

[Amit Agrawal]

*In my last post above, please read relevant line as follows: Request you to elaborate what are these 'finished goods' please.

[umeshkumar jhawar]

Dear Sir

We are manufacturing of MS TMT Bar and TMT bar is going to be used in Foundation setup for Plant & Machinery.

Here Two opinion from Expert's ,

First one "Captive Consumption for Plant & Machinery Installation is Supply, Then in that Case Should I raise Self Invoice with Same GST No in Invoice of Supplier and Receipient? and here will GSTR-1 will accept Self GST No?

Or Second one

If it is not supply then How should I recogonized the transaction in Books of Accounts?Here I want book entry to Increase the Amount of Fixed Assets and reduced the Inventory.

[Amit Agrawal]

Dear Quriest,

From your last post above and for the purpose of my replies in this post, I am presuming that potential bar (if any) on ITC availment under clauses (c) & (d) of sub-section (5) of Section 17 - against goods / services used in manufacturing said MS TMT Bar and TMT bar (to be used in Foundation setup for Plant & Machinery) - is not a matter of issue under discussion here, in view of explanation thereunder (where the expression “plant and machinery” is explained).

With above understanding, let me address your queries from your last post, as follows:

Query No. 1: "Captive Consumption for Plant & Machinery Installation is Supply, Then in that Case Should I raise Self Invoice with Same GST No in Invoice of Supplier and Receipient? and here will GSTR-1 will accept Self GST No?

Answer: As explained in both of previous posts above, there is no legal provision under current GST law which requires the tax-payer to raise any tax-invoice / self-invoice against captive consumption of finished goods under discussion here. Hence, there is to need to discharge any GST as outward supply in my humble view. Accordingly, you need not raise any tax-invoice & discharge outward tax liability under GST.

Though not directly relevant to the legal issue involved, I believe that GST portal will not accept such self-invoice where both supplier and recipient is shown having same GSTN against outward supply while filing Form GSTR-1.

Query No. 2: If it is not supply then How should I recogonized the transaction in Books of Accounts?Here I want book entry to Increase the Amount of Fixed Assets and reduced the Inventory.

Answer: You need to pass journal voucher entry (JV) in your books of account to transfer inventory of 'finished goods' to capital assets (under the head 'Plant & Machinery', assuming that said work is already completed) or the another current asset namely work-in-process (assuming that said work of building foundation is about to start start). For valuation for passing such JV, you need to check accounting standards and check with your CA.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

Dear Umeshkumar Jhawar Ji,

Assuming the manufacturing and the usage of finished goods are by same entity (i.e same GSTN) then,

1. ITC shall not be eligible for goods used for manufacturing of finished goods used for consumption for factory building; Pls find section 17(5):-

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

2. ITC shall be eligible for goods used for manufacturing of finished goods used for consumption for factory building; Pls find explanation which reads as:

Explanation.–– For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

So ITC of TMT bars used for foundation / structural support of plant and machinery shall also be available.

3. No requirement for raising self-invoice under the present situation or declaration in GSTR-1 or GSTR-3B return as there is no supply at all;

Subsidiary questions:-

4. The manufacturing expenses such as materials, labour, overheads etc... shall be capitalized either under factory building or under P&M respectively.

[Padmanathan Kollengode]

I respectfully disagree with the views of Ld Kasturi Ji in Post 4 and 6:

1. While it is true that supply includes all forms of supply of goods or service, an impugned activity/ transaction has to fall under some form of supply to attract levy.

Merely by using a stock-in-trade to construct a fixed asset, no form of supply as envisaged under section 7 is attracted. There is no transfer of title, possession, ownership, etc.. .what-so-ever from one person to another. Therefore, it is neither sale, exchange, barter, license, lease or rental or any other form of supply.

2. If the logic of "self-supply" in Post 4 above is extended, there would be infinite number of supplies liable to GST within in an entity. If a registered person is having a HR personal, whether the organization is self-supplying HR services to itself? if a registered person is having an marketing personal, whether the organization is self-supplying marketing services to itself? If a registered person transport goods from one additional places of business to another, whether it is selling goods to itself? or providing transportation service to itself? This list will go on and forth, which would defy all logic.

3. That is why, the GST Law has specifically carved out the "Distinct Person" concept, wherein different GSTINs of same organization are treated as distinct person for levying GST. If the impugned transaction is not between "distinct persons", then there is no such thing called 'self-supply'.

4. Self-invoicing is also clearly provided in section 31(3)(f) and the present activity/ transaction does not fall in to the same.

5. Till date I have not seen any two views on this particular issue by experts in any forum. Therefore, I also fail to understand how experts are divided on this.

[Padmanathan Kollengode]

Post 12:

In Para 2, please read as "plant and machinery" instead of "factory building";

[Amit Agrawal]

In view of peculiar facts under discussion here, I respectfully disagree with Shri PadmanathanJi for his view against Para No. 1 in his post at serial No. 12 above.

Here, the tax-payment has not procured any goods / services for construction of an immovable property but same is procured for manufacturing finished goods (i.e. MS TMT Bar). And some of these finished goods are in-turn used by him for construction of an immovable property.

Alternatively and without prejudice, there is no mechanism given under law / rules to calculate ITC to be reversed in such scenario (i.e. even if it is assumed that blockage of ITC u/s 17(5)(d) is applicable in given case under discussion here).

Hence, I hold a view that ITC need not to be reversed u/s 17(5)(d) against goods / services used for manufacturing finished goods ((i.e. MS TMT Bar) even if some of these finished goods are in-turn used by him for construction of an immovable property (other than plant and machinery).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.