Query regarding common ITC reversal

[KARAN VERMA]

Sir, in case of sugar mill, assessee has sold sugar, molasses both are taxable supply but assesse has purchase boiler/turbine for generation of power and from this 50% power will be sold to outside and 50% will be captive consumed for manufacturing of sugar.

Now, my question is assessee has to reverse ITC on boiler/turbine on proportionate basis, then what will be base.

Assume- power sale to outside is ₹ 10 crores which is exempt and sugar/molasses sale is ₹ 150 crores. And ITC related to power plant is ₹ 25 crores.

Option-1 Reversal of ITC= (Total exempt sale/Total sale * ITC) = (10/160*25) = ₹ 1.56 crores or

Option-2 Reversal of ITC= 50% of ₹ 25 crores = ₹ 12.5 crores because power sale 50 % sold to outside and 50 % use for sugar manufacturing.

Kindly clarify which option is true.

AI Summary

Input tax credit reversal for mixed supplies: capital goods ITC apportioned over asset life and proportionately adjusted.
ITC related to assets used for both taxable and exempt supplies must be restricted; inputs/input services use proportionate reversal, while capital goods follow the common credit adjustment spreading ITC over the asset's useful life with monthly apportionment and reversal based on exempt turnover relative to total turnover, and an initial mandatory reversal applies if the asset was previously used for exempt supply.