REGARDING REVERSAL OF ITC AS PER RULE 42 ADD 43

[FARIDUDDIN AHMAD]

Sir in the case of reversal of ITC as per rule 42 and 43 for the period 2019-20 my client received notice u/s 73 to reverse the ITC as per rule 42 and 43. The facts of the case is my client is engaged in the business of manufacturing of vinner patta by processing wood used as raw material. However during the period 2019-20 woods are purchased from registered as well as unregistered dealer. During the period my client paid the RCM tax on purchase from unregistered dealer and availed the ITC. The department calculated the reversal as per rule 42 and 43 on whole ITC availed after payment of RCM and FCM. In response to the notice I have prepared reply and clarified that reversal of ITC availed on payment of RCM should not be required because purchase of wood from unregistered does not attract RCM also wood is not present in specified list of RCM, therefore availent of ITC on wrong payment of RCM tax should not be treated as ITC since in the eyes of law wrong payment of RCM does not attract formation of ITC. therefore, consider the matter as revenue neutral and rectify the demand restricted to only reversal of ITC availed on payment of tax on FCM basis.

AI Summary

Reversal of Input Tax Credit may not be required where reverse charge was not applicable, prompting refund or litigation.
Reversal of Input Tax Credit under Rule 42/43 was contested where the taxpayer paid tax under the Reverse Charge Mechanism on wood purchased from unregistered suppliers and availed ITC. The taxpayer contends RCM did not apply because wood is not in the notified list; therefore ITC claimed after wrong RCM payment should not be treated as valid ITC and reversal should be limited to forward-charge attributable credit. Remedies include seeking refund for wrongly paid tax (subject to unjust enrichment) or litigating non-applicability of RCM.