My client was dealing in exempted goods. He purchased heavy machinery for Rs.2 crore. Since he was dealing in exempted goods, he reversed ITC. It was 2 years back. Now he has started in taxable goods. Machinery is being used for the taxable goods. Can he reclaim ITC on the book value of the said machinery?

Section 18(1)(d) provides that where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock relatable to such exempt supply and on 2 | Page capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable and in such cases, in case of Capital goods, it will be reduced by specified percentage points. Sub section 2 further provides that A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply. Reading the two provisions harmoniously, it can be said that no ITC of more than one year can be availed. In present case, it can however, be argued that since the Credit was taken and reversed, the condition in sub section 2 is not applicable and Input Tax Credit of such capital goods (machine) can be taken after reducing it by specified percentage points.