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?
 

AI Summary

Manufacturing Firm Must Reverse Input Tax Credit for Sold Power per Section 17(1) and Rule 42, CGST Act 2017. A manufacturing company producing sponge iron, billets, and TMT bars operates an Integrated Steel Plant (ISP) with a captive power plant. The power plant uses coal, char, and waste heat from the sponge iron division to generate electricity, with 30 MWH used internally and 5 MWH sold externally. Under GST law, power is exempt from tax. The company inquired whether it needs to reverse Input Tax Credit (ITC) proportionally to the power sold. Experts confirmed that proportionate ITC reversal is necessary according to Section 17(1) of the CGST Act, 2017, using the formula outlined in Rule 42 of the CGST Rules, 2017.