2019 (9) TMI 1120 - AAR - GST

Applicant Must Reverse Input Tax Credit on Common Capital Goods per Rule 43

The ruling mandated the Applicant to compute and reverse input tax credit on common capital goods as per rule 43 provisions. Full credit for input ... Apportionment of input tax credit on capital goods - useful life of capital goods calculated from date of invoice - computation and reversal of balance credit under the proviso to rule 43(1)(d) and rules 43(1)(e),(f),(g) - apportionment of common input tax credit on input services - determination of common credit attributable to exempt supplies under rule 42 and final adjustment under rule 42(2)Apportionment of input tax credit on capital goods - useful life of capital goods calculated from date of invoice - proviso to rule 43(1)(d) - Extent and manner of admissible input tax credit on capital goods initially used for taxable supplies and subsequently used for both taxable and exempt supplies. - HELD THAT: - The Authority accepted the Revenue's construction of rule 43 and held that input tax attributable to each capital good must be credited to the electronic credit ledger and apportioned over the useful life prescribed in rule 43, which is sixty months from the date of invoice. Where capital goods were used for producing taxable goods and thereafter for both taxable and exempt goods, the proviso to rule 43(1)(d) prescribes the portion attributable to the period when the goods were used exclusively for taxable supplies; the remaining credit forms part of the corpus Tc and must be apportioned over the balance of the useful life in accordance with rules 43(1)(e), (f) and (g). The Applicant is therefore required to compute the admissible amounts in the tax periods over the useful life calculated from the invoice date and reverse the balance amount already credited to the electronic credit ledger. [Paras 4]Input tax credit on such capital goods must be computed from the date of invoice over the prescribed useful life under rule 43; the portion attributable to taxable-only use is to be determined under the proviso to rule 43(1)(d) and the balance apportioned under rules 43(1)(e)-(g), with reversal of any balance credited.Apportionment of common input tax credit on input services - determination of common credit attributable to exempt supplies under rule 42 - final adjustment under rule 42(2) - Admissibility of input tax credit on input services for the tax periods prior to commencement of exempt supplies. - HELD THAT: - The Authority applied the formula and mechanism in rule 42 for determining common credit attributable to exempt supplies (D1 = (E/F)*C2) and observed that where commercial production of exempt goods had not commenced in 2018-19, the aggregate value of exempt supplies (E) for those tax periods is zero. Consequently, the amount of common credit attributable to exempt supplies for 2018-19 is nil. Subject to the procedural and final adjustment requirements of rule 42(2), the entire input tax on input services for 2018-19 is therefore admissible as credit. [Paras 4]Entire input tax on input services is admissible as credit for 2018-19, subject to compliance with rule 42(2), because no exempt supplies were made in that period.Final Conclusion: The Authority ruled that (i) input tax credit on capital goods used first for taxable supplies and later for both taxable and exempt supplies must be computed from the invoice date over the useful life under rule 43, applying the proviso to rule 43(1)(d) and rules 43(1)(e)-(g), with reversal of the balance credited; and (ii) since exempt production did not commence in 2018-19, the entire input tax on input services for 2018-19 is admissible subject to rule 42(2). Issues:1. Admissibility of the ApplicationAdmissibility of the Application:The Applicant, engaged in manufacturing taxable and exempted goods, sought an advance ruling on the admissibility of input tax credit on common capital goods and input services. The Applicant's application was admitted as the issues raised were not pending or decided under the GST Act, and no objections were raised by the Revenue officer.Submissions of the Applicant:The Applicant argued that input tax credit apportionment should follow GST Act provisions and rules. They contended that the formula under rule 43 for capital goods should apply post the start of commercial production. For input services, the Applicant claimed eligibility for full credit until exempt goods production commenced.Submissions of the Revenue:The Revenue officer proposed apportioning input tax credit based on rule 43(1)(d) for capital goods and rule 42 for input services. They emphasized attributing input tax on capital goods to taxable goods production and subsequent apportionment for exempted goods. The Revenue supported full credit for input services until exempt goods production.Observations and findings of the Authority:The Authority agreed with the Revenue on apportioning input tax credit for capital goods under rule 43(1)(c) and the useful life calculation. The Applicant was directed to report details of supplies for credit ledger updates. The ruling outlined the methodology for apportioning input tax credit on capital goods and input services, emphasizing adherence to GST Rules provisions.Conclusion:The ruling mandated the Applicant to compute and reverse input tax credit on common capital goods as per rule 43 provisions. Full credit for input services until exempt goods production began was allowed for the relevant tax period. The ruling's validity was subject to GST Act provisions until declared void.