ITC reversal sec.(42) or not.

[Yash Jain]

We are engaged in Raw Cotton Ginning Pressing and Cotton Seed oil mill factory.

We buy Raw Cotton From farmers and are required to pay RCM. (RCM was suspended but Raw cotton RCM was started again as per notif. 43/2017 - central tax (rate) - 14-11-2017.

The output Products are cotton bales - Taxable @5% and Cotton Seed @5%.

Cotton Seed is sold to oil Mill. We have our own mill. After crushing output products are oil@5% and

Cotton seed oil cake ( cattle feed) - Tax free (as per notification 27/2017 dt. 22-09-2017.

Now the question is, are we people liable to do reversal of itc under section 42(3) of RCM ITC and other ITC on monthly basis or we do not need to reversal.

People are having different opinion. It is said that we not liable to do reversal.

Some say it is Tax free supply - so no reversal needed.

Some say it is Non GST supply - so no reversal needed.

Some say it is NIL rated supply - so no reversal needed.

Few are saying that they will claim refund after filing annual return GSTR 9.

Please clarify this matter as CA's are also divided on this issue.

AI Summary

Debate on ITC Reversal Necessity for Cotton Ginning Businesses under GST Section 42(3) with RCM Considerations A discussion centered on whether Input Tax Credit (ITC) reversal is required under section 42(3) of the Goods and Services Tax (GST) Act for a business involved in raw cotton ginning and oil mill operations. The business pays Reverse Charge Mechanism (RCM) on raw cotton and sells products like cotton bales and oil, which are taxable, and cotton seed oil cake, which is tax-free. Opinions differ on whether ITC reversal is necessary, with some referencing section 17(2) and others noting the tax-free or nil-rated nature of certain supplies. Additional queries were raised about interest penalties and documentation for excess reversal refunds.