XYZ is supply product ‘A’ which is taxable and therefore charging GST. XYZ also buying Product ‘B’ which is attracting ‘Nil’ duty as per tariff. The same they are supplying without charging GST since attracting ‘Nil’ GST. Is XYZ required to reverse proportionate ITC against supply of product ‘B’ without GST, even if at the time of purchase itself it was attracting ‘Nil’ GST?
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As per Section 17(2) of the CGST Act, 2017 read with Rule 42 & 43 of the CGST Rules, 2017, proportionate ITC to be reveres to the common ITC not whole ITC according to the ratio of exempted supply turnover. XYZ is required to reverse the common ITC proportionate to exempted turnover during every month and finally on yearly basis.
Dear Sh.Rajesh Kumar Ji,
How can we integrally link such transaction (wholly and separate supply) in this scenario for the purpose of reversal on pro rata basis ? Will you please throw more light ?
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Thanks Rajesh and Kasturi Sir for your advice. Kasturi Sir, in fact i am learning many new things from your detailed and justified answers given by you from time to time.
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Just sharing with you as a gesture of good will.
Hope you will agree.
Yes Kasturi Sir, fully agree with your views.
Sir, in my view, the reversal of input tax credit is not required because the purchase was itself NIL rate or exempt. The reversal is required if input used commonly for the supply of taxable and exempt goods.
Sec. 2(47) defines “exempt supply” as "supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes nontaxable supply;". As per this definition exempt includes NIL rate of tax as well.
Ganeshan Sir, thanks for your reasoned reply. However, in my view, the reversal of ITC for common services is required under Rule 42 and 43 of CGST Act, 2017, if the taxable person is having both taxable and exempted supply. Since one of the supply is exempted, reversal is necessary. The reversal provision is linked with outward supply and no relation with inward supply.
Product A is taxable supply and product B is exempted supply Only when tax paid inputs are used in the supply of products A & B the question of proportionate reversal of ITC availed will come into play. Since products A & B are supplied separately and no common inputs are used for such supply the question of propoertional reversal if ITC doesnot arise.
I concur with the views of Sh.Ranganathan, Sir and Sh.Ganeshan Kalyani, Sir.