Reversal under Rule 42

[Rajesh Kumar]

Sir/madam

if a supplier of FMCG products most of which are taxable except some goods like unbranded rice sells his goods. Should he reverse the ITC in respect of sell against exempted supply? Or he can say that as the purchase of said exempted goods is itself without ITC, accordingly he sells without passing ITC . So there is no involvement of ITC therefore no reversal required.

AI Summary

Input tax credit reversal required for common credits used for exempt supplies under Rule 42, unless exclusively attributable.
Rule 42 requires reversal of Input Tax Credit where inputs are commonly used for taxable and exempt supplies; identifiable and exclusively attributable purchases for exempt supplies need not be proportionately reversed. Specific inputs procured solely for exempt supplies are wholly ineligible, while common overheads benefiting both activities require apportionment and reversal.