Applicant to Reverse ITC for Exempt Supplies under GST Act

The ruling mandates that the applicant must reverse the Input Tax Credit (ITC) attributable to the supply of exempt Cotton Seed Oil Cake, as per Section 17(2) of the GST Act, 2017. The ITC on Raw Cotton purchased under the Reverse Charge Mechanism is allowed, but limited to taxable supplies. Similarly, the ITC on Plastic Bags used for packing the exempt product must be reversed. No ruling was provided on the requirement to reverse ITC for past periods under Rule 42 of the CGST Rules, 2017.

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Issues Involved:
1. Treatment of claiming Input Tax Credit (ITC) on by-product Cotton Seed Oil Cake taxable at 0%.
2. Applicability of Apportionment of Input Tax Credit under Section 17 of GST Act on Cotton Seed Oil Cake.
3. Treatment of claiming ITC on Raw Cotton purchased from agriculturists under Reverse Charge Mechanism.
4. Treatment of claiming ITC on Plastic Bags (Bardana) used for packing Cotton Seed Oil Cake.
5. Requirement to reverse ITC for the periods 2017-18 and 2018-19 as per Rule 42 of CGST Rules, 2017.

Detailed Analysis:

1. Treatment of claiming Input Tax Credit on by-product Cotton Seed Oil Cake taxable at 0%:
The applicant, engaged in the manufacture of Loose Cotton, Cotton Seeds, Cotton Seed Oil, and by-product Cotton Seed Oil Cake, sought clarity on ITC for the exempted by-product Cotton Seed Oil Cake. Section 16(1) of the GST Act, 2017 entitles a registered person to take credit of input tax charged on any supply of goods or services used in the course of business. However, as per Section 17(2) of the GST Act, 2017, the amount of credit shall be restricted to the input tax attributable to taxable supplies. Therefore, the applicant must reverse the ITC used in the manufacture and sale of Cotton Seed Oil Cake, which attracts a 0% GST rate.

2. Applicability of Apportionment of Input Tax Credit under Section 17 of GST Act on Cotton Seed Oil Cake:
Section 17(2) of the GST Act, 2017, and Rule 42 of the GST Rules, 2017, mandate that ITC must be apportioned when goods or services are used partly for taxable supplies and partly for exempt supplies. The applicant must reverse the ITC attributable to the exempt supply of Cotton Seed Oil Cake. The ruling confirms that the provision of Apportionment of Input Tax Credit under Section 17 of the GST Act will be applicable to the by-product Cotton Seed Oil Cake.

3. Treatment of claiming ITC on Raw Cotton purchased from agriculturists under Reverse Charge Mechanism:
The applicant is eligible to claim ITC on Raw Cotton purchased from agriculturists, on which tax at 5% is paid under the Reverse Charge Mechanism, as per Section 16 of the GST Act, 2017. However, the credit is to be restricted to the extent of input tax attributable to taxable supplies, including zero-rated supplies, as per Section 17(2) of the GST Act, 2017. The applicant must reverse the ITC attributable to the exempt supply of Cotton Seed Oil Cake.

4. Treatment of claiming ITC on Plastic Bags (Bardana) used for packing Cotton Seed Oil Cake:
The ITC on Plastic Bags (Bardana) is eligible under Section 16 of the GST Act, 2017. However, since the applicant uses Plastic Bags exclusively for packing Cotton Seed Oil Cake, which is exempt from GST, they must reverse the ITC on Plastic Bags as per the provisions of Section 17(2) of the GST Act, 2017.

5. Requirement to reverse ITC for the periods 2017-18 and 2018-19 as per Rule 42 of CGST Rules, 2017:
The authority is mandated to pronounce rulings on matters currently undertaken or proposed to be undertaken. The issue of whether the applicant must reverse the ITC for the periods 2017-18 and 2018-19 as per Rule 42 of the CGST Rules, 2017, is not covered under Section 95(a) of the GST Act. Therefore, no ruling is provided on this issue.

Ruling:
As per Section 17(2) of the GST Act, 2017, the amount of credit shall be restricted to the input tax attributable to taxable supplies, including zero-rated supplies. The applicant must reverse the ITC attributable to the supply of Cotton Seed Oil Cake, which is exempt from GST, following the provisions and procedures under Section 17(2) of the GST Act, 2017, read with Rule 42 of the GST Rules, 2017. The applicant is eligible to claim ITC on Raw Cotton purchased from agriculturists under the Reverse Charge Mechanism, but the credit must be restricted to the input tax attributable to taxable supplies. The ITC on Plastic Bags (Bardana) must also be reversed as they are used exclusively for packing the exempt Cotton Seed Oil Cake. No ruling is given on the issue of reversing ITC for past periods under Section 95(a) of the GST Act, 2017.

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