ITC claim on preservative used in taxable and exempted goods

[S.C. WADHWA]

Dear Expert,

We are using preservatives for manufacturing food items in taxable as well as exempted goods. Please suggest formula to claim ITC on purchase/consumption of preservative.

REGARDS,

WADHWA

[Amit Agrawal]

Kindly refer to Section 17 (2) & 17 (3) of the CGST Act, 2017 read with Rule 42 & 43 of the CGST Rules, 2017.

[Ganeshan Kalyani]

Taxable supply turnover / Sum of taxable and exempt supply turnover X ITC on preservative used commonly = eligible ITC.

Balance ITC pertains to exempt supply which you should in 3B.

[Shilpi Jain]

In case you are able to identify at invoice level the quantum of preservative used for taxable and exempt, to the extent of the preservative used in exempt alone the reversal of credit need to be done. refer rule 42(1)(m).

[Shilpi Jain]

Thus it is not necessary that in all cases the expenses have to be considered as common ITC and hence reversal need not always be done on the basis of turnover.

This proposition you can test in your specific facts and see what is beneficial and apply accordingly.

AI Summary

Input tax credit apportionment: pro rata allocation or invoice-level identification determines eligible credit; reversal required for exempt use. Input Tax Credit on preservatives used for both taxable and exempt goods must be separated: if preservative use for exempt supplies is identifiable at invoice level that portion must be reversed; otherwise apportion ITC using the ratio of taxable turnover to combined taxable and exempt turnover and reverse the balance attributable to exempt use, with the reversal disclosed in the periodic returns.