Determination of ITC - partly used for exempt supply and partly used for taxable supplies

[gvenugopal g]

Sirs, We purchase Urad Dall (HSN # 07139091) and paid IGST (ITC), The item being partly used for manufacturing exempt supplies and remaining for taxable supplies. How to adjust ITC against GST on outwards supplies in both exempted and taxable? Kindly suggest.

[KASTURI SETHI]

You are entitled to avail proportionate ITC. This can be illustrated with the following example:-

Suppose you have purchased raw material(inputs/goods) valued at ₹ 10,000/- IGST paid @5% i.e. 500/-. and two products were manufactured out of these inputs. One product of the value of ₹ 8000/- attracted CGST and SGST @ 18% (9% each) and other product value of ₹ 8000/- was exempt. Thus ratio of taxable and exempt supply is 50 : 50%..

Thus you are entitled to avail only 50% of ITC.

[KASTURI SETHI]

In continuous of my reply, Section 17(2) of CGST Act, 2017 refers.

[gvenugopal g]

Dear Kasturi Sethi Ji,

Thank you very much for your valuable reply for the query raised by me.

AI Summary

Input tax credit apportionment: proportionate ITC allowed for taxable use, remainder must be disallowed or reversed. Where inputs are used partly for taxable supplies and partly for exempt supplies, only the proportionate ITC attributable to taxable supplies may be availed; the remainder must be disallowed or reversed. The apportionment follows the statutory blocking and apportionment framework under Section 17(2) of the CGST Act, using the ratio of taxable to total supplies to compute the eligible ITC share.