Set off on Capital goods

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Ashwin (Querist)
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03 June 2010 What provisions are applicable for taking set off on capital goods in MVAT if I am doing business in Printing industry?

Ashwin

Ashwin (Querist)
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16 July 2010 Kindly send me reply.

its urgent

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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25 July 2025 ### **Set-off on Capital Goods under MVAT (Maharashtra VAT Act) for the Printing Industry**

Under the **Maharashtra VAT Act (MVAT)**, businesses can claim set-off (input tax credit) for VAT paid on **capital goods** used in the course of business, including the **printing industry**. However, there are specific provisions and conditions regarding capital goods under the VAT regime.

#### **Key Provisions for Set-off on Capital Goods:**

1. **Definition of Capital Goods**:

* **Capital Goods** under MVAT refers to items like **machinery**, **equipment**, **furniture**, **tools**, and any other assets used in the manufacturing or providing services, including **printing machines** and **other equipment** used in the printing business.

2. **Eligibility for Set-off**:

* To claim a **set-off** on capital goods, the item must be used for **business purposes**. In the printing industry, if the capital goods are used in the process of printing or related activities, you are eligible to claim the set-off on VAT paid while purchasing these goods.
* If the capital goods are used **partly for business** and **partly for personal use**, the set-off will only be allowed proportionally based on the business usage.

3. **Timeframe for Set-off**:

* The VAT paid on **capital goods** can be claimed over a **period of time** as follows:

* **First Year**: Set-off can be claimed in the **year of purchase**.
* **Second Year onwards**: If the capital goods are used for business for a period of **5 years or more**, the set-off is allowed in the year of purchase, and adjustments are made if necessary in subsequent years (e.g., if the use of the capital goods changes).
* **5-year Rule**: If the capital goods are sold or otherwise disposed of within **5 years** of purchase, you may have to reverse the set-off claimed for those years.

4. **Partial Set-off for Use of Capital Goods**:

* If capital goods are used for both taxable and non-taxable (exempt) purposes, the set-off should be claimed proportionately based on the **usage for taxable purposes**. If the capital goods are used exclusively for taxable activities, the full VAT paid can be claimed as set-off.

5. **Conditions for Claiming Set-off**:

* The **purchase invoice** should be in the name of the business and must mention **VAT** paid.
* The business should be registered under **MVAT**.
* **Taxable turnover**: The capital goods must be used for activities that generate taxable turnover (e.g., printing services and products).
* You must maintain proper records to substantiate the VAT paid and used for capital goods.

6. **Reverse Charge Mechanism**:

* If you're purchasing capital goods from an unregistered dealer (subject to reverse charge mechanism), you will need to pay the VAT to the government under reverse charge and then claim it as input credit. This is a special provision under MVAT.

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### **Practical Example:**

Suppose your printing business purchases a **printing machine** worth ₹10,00,000 (with ₹1,00,000 VAT) in the year 2022. The machine is used solely for printing, a taxable activity under MVAT. Here’s how the set-off will work:

1. **In the year of purchase (2022)**:

* You can claim the entire ₹1,00,000 VAT paid as **set-off** against your output VAT liability for that year.
2. **In subsequent years**:

* If the machine continues to be used for business purposes, the input VAT remains valid for future set-off.
3. **If sold within 5 years**:

* If you sell the printing machine in 2025, you may need to **reverse the VAT set-off** you claimed earlier, depending on the sale price and the depreciation claimed.

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### **Conclusion:**

* **Set-off on capital goods** is **available** under MVAT, provided the goods are used in the business (printing, in your case).
* The VAT paid on capital goods can be **fully set off in the year of purchase** if the goods are used for taxable activities.
* **Partial set-off** applies if the capital goods are used for both taxable and exempt purposes.
* Proper **record-keeping** and **invoices** are necessary to claim the set-off.

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Let me know if you need any further details or specific guidance related to your printing business!

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