TaxTMI 
TaxTMI 
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?
ITC Reversal Requirements Under Rule 42 for exempt by products
21 May 2025 
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Input tax credit reversal required for exempt by products; proportionate credit must be reversed under GST compliance rules.
Input tax credit reversal is required where inputs or input services are used to make both taxable supplies and exempt by products: the credit must be restricted to the portion attributable to taxable supplies and the proportion attributable to exempt turnover must be reversed. Characterisation of the by product as marketable or independently classifiable determines its treatment as an exempt supply, and taxpayers must apportion common credit and reverse the exempt share accordingly. (AI Summary)
Input tax credit reversal is required where inputs or input services are used to make both taxable supplies and exempt by products: the credit must be restricted to the portion attributable to taxable supplies and the proportion attributable to exempt turnover must be reversed. Characterisation of the by product as marketable or independently classifiable determines its treatment as an exempt supply, and taxpayers must apportion common credit and reverse the exempt share accordingly. (AI Summary)