Question

If we sell MEIS License in zero tax then Tax credit should be reverse or not? or if yes then what is the procedure?

Answer

MEIS license is exempt from GST vide Notification no. 35/2017 Central Tax (Rate) and Credit on exempt supplies is restricted under section 17(2) which is as follows:

Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Therefore credit on common inputs and services used are required to be reversed to the extent it is used for exempt supplies. The procedure for reversal of credit is given in Rule 42 and Rule 43 of CGST Rules. (Reply dt.24/11/2018)