Respected members,
I had a doubt regarding reversal of ITC o n cotton seed used for manufacturing of cotton seed cake(exempt) and cotton seed oil(taxable @5%), first doubt is that in this case will I have to apply rule 42 or I can simply take 90% of itc on cotton seed as for exempt supply( cotton seed cake production ratio) and balance 10% as itc for taxable supply(oil ratio)
And secondly if I had to apply rule 42, then in that case if In a particular tax period i had not sold oil i,e no taxable sales, just sale of exempted cotton seed cake, then my entire itc on cotton seed for that month has to be reversed as per rule 42 since in that case my exempt sales shall be total sales
Please reply
Debate on ITC Reversal Method: Monthly Turnover Ratios Favored Over Production Ratios Under GST Rule 42 A forum discussion revolves around the reversal of Input Tax Credit (ITC) under GST Rule 42, specifically concerning cotton seed used for manufacturing exempt cotton seed cake and taxable cotton seed oil. The primary issue is whether ITC should be divided based on production ratios or turnover ratios. Participants generally agree that ITC should be reversed monthly based on turnover ratios, not production ratios, and an annual calculation should adjust any discrepancies. While some suggest using previous year turnover as a benchmark, others emphasize compliance with the rule's monthly turnover basis. The discussion highlights the importance of accurate ITC reversal to avoid interest or penalties. (AI Summary)
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