Input Tax Credit Reversal

[kodhanda Ramakrishna]

A Company is a manufacturing company primarily manufactures Sponge Iron, Billets and TMT Bars which are falling under chapter 72 and applicable GST rate is 18%. Each product has separate manufacturing divisions namely Sponge Iron Division, Steel Melting Shop (SMS) Division and Rolling Mill Division respectively and collectively called as Integrated Steel Plant (ISP) and final product is TMT Bars. The company has a captive power plant with a capacity of 60 MWH. The basic raw materials for power plant are Coal/Coal fines, Char and Waste Heat generated from Sponge Iron Division. 15MWH from waste heat generated from sponge iron division, 5MWH from char which is also generated from Sponge Iron Division. The power generated is being used captively for Integrated Steel Plant (ISP) and nominal amount of power being sold outside through Indian Energy Exchange (IEX). Under GST Law Power is an exempted commodity vide entry no 104 of Notification No. 2/2017-Integrated Tax (Rate) dated 28th June 2017. The present average power generation is 35 MWH. Out of 35MWH, 5MWH is being sold outside and 30 MWH is captive consumption.

whether the company required to reverse ITC in proportion to sale of power? If so what could be the base for reversal of ITC?
 

[KASTURI SETHI]

Yes.Proportionate reversal of ITC is required in terms of Section 17(1) of CGST Act, 2017 and formula/manner is prescribed in Rule 42 of CGST Rules, 2017.

[Ganeshan Kalyani]

Yes, proportionate input tax credit is to be reversed.

AI Summary

Input Tax Credit reversal required for exempt power sales, proportionate as prescribed under Section 17(1) and Rule 42. Proportionate reversal of Input Tax Credit is required where inputs are used partly for exempt supplies (power) and partly for taxable outputs; the statutory basis is Section 17(1) and the calculation method follows the apportionment mechanism prescribed in Rule 42.