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

[kanwaljeet singh]

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

Please reply

Posts / Replies

[KASTURI SETHI]

Dear Sh.Yash Jain Ji,

Sir, There is apprehension of interest or penalty. Nothing else. Nothing untoward is going to happen. If there is a fluctuation or inconsistency for one or three months or continually in a financial year, then best recourse is to work out the amount of reversal on the basis of whole year.

In my view it is hair splitting/nit picking ?

[KASTURI SETHI]

An article written by CA Shilpi Jain is worth reading. It was published on 17.12.18 in Article Section of TMI.

[Ganeshan Kalyani]

Production turnover cannot become base to arrive at a ratio for reversal of input tax credit. GST is on supply and therefore turnover ratio is a considered by most of the assessee. Entire year a previous month ratio or previous year ratio to be considered. If one want to focus on other aspects of GST then he should refer previous year turnover. And after the end the financial year when books of account for that year is finalized then revised working to carry out and actual reversal to be made.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Read your views. Can Chartered Engineer be helpful in this context ?

[Naveenkumar Medishetty]

Dear KASTURI SETHI Sir,

In case there is no turnover for the tax period(monthly/qtrly), turnover of the last tax period needs to be considered.

[KASTURI SETHI]

Dear Sh.Naveen Kumar Ji,

Yes. I agree with you but dues to fluctuations the accuracy can be evolved only on the basis of one year as suggested by Sh.Ganeshan Kalyani Ji.

[Naveenkumar Medishetty]

Yes sir. but that is how rules are framed.

Simply we have to follow.

[Mandar Sathe]

Dear Sir

The assessment of tax/reversal of credit is to be done month wise. This the formula provided in Rule 42 is to be applied using the figures of the month of assessment. I do understand that this will cause some difficulty if you have purchases in a month and no taxable sale in the said month.

You do have an option not to avail the credit in the month when there is no taxable supply and avail the same in the subsequent month.

Having said that one has to be aware that Rule 42(2) provides that at the end of the year an annual calculation is also required to be done and any excess credit availed has to be reverted or re-credit can be taken of excess reversal based on the annual calculation. Technically the values of previous year can not be taken as a bench mark. (the provisions of Rule 42 under CGST Act are different for the concept of Rule 6(3) of the CENVAT credit Rules)