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Reversal of ITC u/r 42, Goods and Services Tax - GST

Issue Id: - 115165
Dated: 8-7-2019
By:- kanwaljeet singh
Reversal of ITC u/r 42

  • Contents

Respected members,

I had a doubt regarding reversal of ITC o n cotton seed used for manufacturing of cotton seed cake(exempt) and cotton seed oil(taxable @5%), first doubt is that in this case will I have to apply rule 42 or I can simply take 90% of itc on cotton seed as for exempt supply( cotton seed cake production ratio) and balance 10% as itc for taxable supply(oil ratio)

And secondly if I had to apply rule 42, then in that case if In a particular tax period i had not sold oil i,e no taxable sales, just sale of exempted cotton seed cake, then my entire itc on cotton seed for that month has to be reversed as per rule 42 since in that case my exempt sales shall be total sales

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Posts / Replies

Showing Replies 1 to 15 of 23 Records

1 Dated: 9-7-2019
By:- Ganeshan Kalyani

In my view, turnover ratio of previous year can be considered to arrive at credit eligible toward taxable supply. Otherwise turnover of previous month can be considered to arrive at the ratio. The final motive is to ensure that input tax credit attributable to taxable supply only to be availed.

2 Dated: 9-7-2019

I concur with the views of Sh.Ganeshan Kalyani Ji. His views are 100% correct. I further add that your first view should be certified by an CMA and then you can go ahead with your first method.

3 Dated: 9-7-2019
By:- kanwaljeet singh

But sir rule 42 does not talk of taking credit or dividing credit in ratio of production, how could I do that???? And further if I do this the concept of COMMON CREDIT where output is partly taxable and partly exempted would be defeated!!!!

4 Dated: 9-7-2019

See replies of Sh.Sanjay Malhotra, C.S. and Sh.Sushil Gupta C.A. against Issue ID No.113659 dated 22.4.18

5 Dated: 10-7-2019
By:- Naveenkumar Medishetty

See as per rule 42, It is a common credit. ITC needs to be reversed every month(tax period) based on exempted turnover of that particular month. In case no sales during the month we should consider last month sales figures. Finally, Gross reversal should be done based on the annual figures.

This approach is in line with rules.

There is no other approach.

6 Dated: 10-7-2019

I endorse the views of Shri Naveen Kumar.

7 Dated: 11-7-2019

If an assessee is to go out of 'tax period', he should go for the whole year as suggested by Sh.Ganeshan Kalyani Ji. Such practice was in force during pre-GST era. The ultimate purpose of law is to safeguard revenue. There should be no revenue loss at all. This precaution is to be taken. C.A.'s and CMA's certificate is valid in terms of Section Section 35 (5) of CGST Act. The department recognizes the same. Such certificate is a statutory evidence.

To remove phobia of interest and penalty.

If there is no revenue loss, neither interest is chargeable nor penalty is imposable on the following grounds:-

1. GST law is in its infancy. Unlimited amendments have taken place. It has not come of age. Still it will take a long time to stabilize.

2. Common Portal System is in its infancy. It has also not come of age. So many glitches have come to notice in the functioning of Common Portal System. It is an open secret.

8 Dated: 11-7-2019
By:- kanwaljeet singh

I agree with views of naveen kumar sir, that means in nutshell I will have to reverse credit in ratio of turnover of every month and I CANNOT divide ITC in Production ratio, right???,

9 Dated: 11-7-2019
By:- Naveenkumar Medishetty


Dear Kasthuri Sethi SIr,

You mean avail ITC entirely and reverse the credit based annual turnover? If it is so, there is no such provision under GST as of now. Yes, I too agree GST law has not reached its puberty but we cannot take the stand based on erstwhile tax laws give suggestions right.

Further, in my view, s.35(5)-certification nothing to do with ITC availment.

10 Dated: 12-7-2019

Dear Sh. Naveenkumar Medishetty Ji,

Sir, I agree with you to the extent that, "Finally gross reversal should be done with annual figures."

Section 2 (106) of CGST Act says  “tax period” means the period for which the return is required to be furnished."

Section 44 of CGST Act requires to furnish annual return. Why above "tax period" does not cover 'Annual Return ? ".

We are concerned with accuracy and accuracy of input-output ratio for the purpose of reversal proportionately is possible only if we take into account the whole year. The querist says that the quantity of exempted goods is more than taxable goods manufactured out of common inputs. Ratio may be 90 : 10, 80 : 20, sometime may be fully exempted in a particular month. It means variation in production of exempted goods and taxable goods. In order to set right this variation, the principle of average has to be resorted to. C.A. or CMA's certificate is legally valid. It is within a framework of GST laws. The department accepts it but at the same time the department may call for the records of the party whether correct reversal has been arrived at before its acceptance. Normally the department accepts. So CA or CMA's certificate is a fool proof documentary evidence.

This is my view. Whether the querist agrees or not ? It is his prerogative.

11 Dated: 12-7-2019
By:- Naveenkumar Medishetty

Dear Sir,

Please read the rule 42 carefully.

In sub rule 1 though they have mentioned it as tax period. In sub rule 2 they mentioned financial year which would make it to interpret tax period as monthly/quarterly return.

Even IDTC, Background materials and ICAI materials it sounds the same interpretation

12 Dated: 12-7-2019
By:- kanwaljeet singh

Dear naveenkumar ji kindly guide me as I also think that reversal CANNOT be done on production basis rather It will have to be done on turnover basis even it gives wrong results, as rule 42 never talked of dividing ITC in ratio of PRODUCTION of taxable and exempted goods,

Kindly share your views

13 Dated: 12-7-2019
By:- Naveenkumar Medishetty

Yes, For details read the discussion

14 Dated: 12-7-2019

Dear Sh.Naveen Kumar Ji,

I agree with your views but one question arises if an assessee is unable to ascertain the quantum of proportionate credit on the basis of one month or three months tax period, what will be the alternative method ?

Your views pl.

15 Dated: 12-7-2019
By:- Yash Jain

What are the implications of someone does less or Zero reversal for 2-3months BUT does complete reversal at the end of Financial Year I.e. march return


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