ITC Reversal Requirements Under Rule 42 for exempt by products

[Sudhir M]

Is ITC reversal under Rule 42 required if the Company has ITC related to the manufacturing process, where the ultimate result of such manufacturing is taxable products, but there are by-products that are exempt under GST? Specifically, is the Company required to reverse common ITC in relation to the turnover of exempt sales of these by-products?

AI Summary

Input Tax Credit Reversal Mandatory for Manufacturing Processes Generating Exempt By-Products Under Rule 42 Legal professionals discussed Input Tax Credit (ITC) reversal requirements under Rule 42 of GST regulations for manufacturing processes generating exempt by-products. The consensus is that companies must reverse ITC proportionately when manufacturing processes result in both taxable and exempt supplies, even if by-products are unintended outcomes. Section 17(2) of CGST Act mandates restricting input tax credit to the extent of taxable supplies, with CBIC Circular No. 41/15/2018-GST confirming this interpretation for common input usage across taxable and exempt product streams.