ITC reversal u/s 42 for high sea sale shown as exempted sale

[Rajesh Kumar]

Sir/ madam

please guide when an assesse has high sea sale as exempted sale shown in 3B return. Is he liable to reverse itc under section 42 for this sale? What will the formula for this reversal only for this exempted sale ?

[KASTURI SETHI]

Formula for reversal

D1 = E/F*C2

D1=amount of input tax credit attributable towards exempted supplies

E = the aggregate value of exempted supplies

F= the total turnover in the State

C2=common credit pertaining to taxable as well as exempted supplies

[Shilpi Jain]

High sea sales being a Sch III item would not be considered as an exempt supply for the purposes of reversal of ITC in terms of section 17(3) of the CGST Act.

So ideally no reversal of credit required.

[KASTURI SETHI]

I concur with the views of Madam Shilpi Jain.

AI Summary

Input tax credit reversal for high sea sales: high sea sales treated as non-exempt, generally no reversal required. Whether reversal of input tax credit is required where a high sea sale is shown as an exempt sale. One position gives a proportionate reversal formula: D1 = E/F*C2 (D1 = ITC attributable to exempt supplies; E = aggregate value of exempted supplies; F = total turnover in the State; C2 = common credit). The alternative position treats high sea sales as a Schedule III item not constituting an exempt supply for reversal purposes, so no reversal is required.