Reversal on capital goods

[Rajesh Kumar]

Respected experts

A TP purchased capital goods in 2017-18 and supplied exempted services. He didn’t avail ITC on that capital goods. Later on , he started to supply taxable supply along with exempted supply. He also purchased more capital goods and availed ITC thereof.

Now, the calculation for the reversal on common ITC under Rule 42 & 43 to be done.

Please guide whether turnover of the supplies done by the capital goods on which ITC was not availed to be considered to calculation. OR Common ITC can be reversed based on the only turnovers done by the capital goods on which ITC availed.

[Kiran Tahelani]

Common credit needs to be reversed on total exempt supply (including supply made from capital goods on which ITC was not availed earlier, as that was specific credit and it has nothing to do with common credit)

Expert can correct me if i am wrong

[Shilpi Jain]

ITC reversal to be done considering the entire turnover which is exempt (irrespective of which CG was used to generate it).

Under GST the ITC reversal is required to be computed by taking turnovers of that entire registration. There is no concept of picking and choosing only those turnovers which have been generated by such CG or input or input services.

This in some cases creates an undue disadvantage or advantage.

[Rajesh Kumar]

Thanks Kiran and Shilpi ma’am

Please share legal provisions in support if any.

[Amit Agrawal]

Dear Quriest,

You have yourself quoted Rule 42 & 43 in your query and plain reading of these rules are explained by my fellow colleagues earlier.

Where is the confusion?

P.S.: Though may not directly be relevant, please also see Section 18 (1) (d) of the CGST Act, 2017 as well, in the context of the query raised.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Should Turnover from Non-ITC Capital Goods Be Included in ITC Reversal Under GST Rules 42 & 43? A taxpayer purchased capital goods in 2017-18 for exempted services without availing Input Tax Credit (ITC). Later, they began supplying taxable goods and availed ITC on new capital goods. The query concerns whether the turnover from capital goods without availed ITC should be included in the ITC reversal calculation under GST Rules 42 and 43. Respondents advised that common credit should be reversed based on total exempt supply turnover, not just those from capital goods with availed ITC. It was suggested to consider the entire registration turnover, referencing Rule 42 & 43 and Section 18(1)(d) of the CGST Act, 2017.