regarding ITC reversal as per rul 42 & 43

[FARIDUDDIN AHMAD]

sir one of my client received notice u/s 73 to reverse the ITC of Rs-1,92,409.66/-(SGST+CGST) as per the provisions of rule 42 & 43 on the exempt sale of fire wood amounting Rs-11,96,250/- generated during the process of manufacturing of VINEER PATTA. he is registerd in GST as manufacturing unit. nature of bussiness is manufacturing of VINEER PATTA (Finished Goods) which attracts 18% GST. rae material required to manufacture finished goods are woods.ITC availed through GSTR 3B are eligible ITC for manufacturing of finished goods. kindly advise rule 42 & 43 is applicable in this case for reversal of ITC

[Yash Shah]

IMHO - When you are involved in partially supplying taxable supplies and partially exempt supplies, ITC would be restricted to the extent of taxable supplies (including zero rated supplies) and anything pertaining to exempt supplies have been reversed if availed. In your case, as you have done sale of fire wood which is exempt from GST, reversal under Rule 42 & 43 is required to be undertaken.

[Padmanathan KV]

I agree, if the raw materials are common credit for both taxable and exempt supply, then Reversal under rule 42 is inevitable.

However, kindly ensure that the calculation is done correctly as per Rule 42. If any goods are used exclusively for supplying taxable goods being vineer patta, then full credit shall be available for such goods (for eg, packing materials of vineer patta etc.)

Many a times, department is treating the entire credit availed in credit ledger as common credit for purpose of reversal u/r 42. This may be incorrect.

[Shilpi Jain]

For an exempt sale of Rs. 11.96L a reversal of ITC of Rs. 1.92 crores looks absurd!!

Also, in addition to the points mentinoed by the experts, see if you can identify at invoice level whether the expense pertains to exclusive taxable supplies. So in that case as per rule 42(1)(m), credit can be fully availed in respect of such invoices.

[KASTURI SETHI]

2023 (8) TMI 572  - IN RE : KARNANI FNB SPECIALITIES LLP

 

AI Summary

ITC reversal for exempt supplies under rule 42/43 may apply where inputs serve both taxable and exempt outputs.
Apportionment rules require reversal of Input Tax Credit when inputs are common to both taxable and exempt supplies; credits exclusively attributable to taxable supplies may be retained in full. Taxpayers should perform invoice-level allocation and apply the prescribed apportionment formula carefully to avoid improper blanket reversals by authorities.