Input Credit under reverse charge where final output is exempt

[rakesh rohilla]

Dear Experts,

I have made payments through reverse charge and paid the entire amount through cash ledger in the month of july 2017. I am providing exempt service i.e. transportation of passenger as well as taxable service. Is reverse charge paid by me can be setoff against my output tax liability. I am a transport company with a authorised service center of TATA. both are running in only one company name. please help me regarding this.

[Himansu Sekhar]

Proportionate credit to be reversed. Please refer to to the ITC rules

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of shri Himanshu

[Ganeshan Kalyani]

Proportionate credit is eligible .

AI Summary

Input tax credit reversal: proportionate ITC apportionment required where reverse charge covers exempt and taxable supplies. Where a taxpayer has paid tax under the reverse charge mechanism and supplies both exempt passenger transport and taxable services, credit attributable to exempt supplies must be disallowed and a proportionate reversal applied under the Input Tax Credit rules; practitioner responses recorded both endorsement of this proportionate reversal requirement and a contrary view that proportionate credit is eligible.