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

ITC reversal: apportionment must use total exempt turnover, including supplies from capital goods without earlier ITC. Reversal of input tax credit for mixed supplies must be computed by reference to the registration's total exempt turnover. Exempt supplies generated from capital goods on which ITC was not earlier availed are nevertheless included in the exempt turnover for purposes of computing common credit reversal; there is no provision to exclude turnover traced to specific capital goods when applying the prescribed apportionment rules.