Input tax credit on packing material depends on whether it supports exempt seed supplies or independent taxable branch transfers.

Input tax credit is not admissible on packing material used to package exempt seed supplies, because the seeds are the principal exempt supply in a composite supply and the related input tax remains blocked to the extent attributable to that exempt outward supply. Credit is admissible where the same packing material is supplied independently as a taxable outward supply to own branches in other States, since it is then used in taxable business activity and is not linked to an exempt supply. The ruling therefore distinguishes between inputs tied to exempt supplies and inputs used for taxable inter-branch supplies.

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Issues: (i) Whether input tax credit is admissible on packing material used for packaging exempt supplies of seeds; (ii) Whether input tax credit is admissible on packing material when supplied as an independent taxable supply to own branches in other States.

Issue (i): Whether input tax credit is admissible on packing material used for packaging exempt supplies of seeds.

Analysis: The supply of seeds in packaged form was treated as a composite supply, with seeds as the principal exempt supply and packing material as an incidental component. Under the scheme of input tax credit and the restriction applicable to exempt supplies, credit is available only to the extent attributable to taxable supplies. Where packing material is used in packaging exempt seeds, the tax component relatable to that exempt supply is not creditable.

Conclusion: Input tax credit is not admissible on packing material used for packaging exempt supplies of seeds, and this issue is decided against the assessee.

Issue (ii): Whether input tax credit is admissible on packing material when supplied as an independent taxable supply to own branches in other States.

Analysis: Where packing material is supplied by itself as a taxable outward supply to own branches, the credit on tax paid for procurement of such packing material is available, because the supply is not tied to an exempt outward supply and the input is used in the course of taxable business activity. The restriction for exempt supplies does not bar credit on the taxable packing material so supplied.

Conclusion: Input tax credit is admissible on packing material supplied as an exclusive taxable supply to own branches in other States, and this issue is decided in favour of the assessee.

Final Conclusion: The ruling allows credit only for the taxable inter-branch supply of packing material and denies credit where the packing material is used in packaging exempt seeds.

Ratio Decidendi: Input tax credit is available only to the extent the input is attributable to taxable supplies, and credit cannot be claimed for inputs used in making exempt supplies even where the same inputs may also be used in other taxable transactions.

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