Question59:This query is related to a solvex plant where Rice Bran is used as Raw Material and Rice Bran Edible Oil and DOC [De-oiled-Cake] are finished goods. Rice Bran is taxable @ 5% , Rice Bran Oil is taxable @ 5% and DOC is Tax Free. Ratio of Rice Bran Oil and DOC to Raw Material is 15:85.

GST input of Common Credit in this case is to be reversed as per Rule 42 of CGST Rules, 2017. Clarification is required on the following:

1. This rule is based on the premise that GST Input related to Exempt Supplies is to be reversed as per following formula on monthly basis:

(Credit Attributable to Exempt Supply) D2=

Common Credit (C2)*Exempt Supply (E)/Total Turnover (F)

Now, suppose the company does not have any exempt supply since implementation of GST and Stock of exempt supplies i.e. DOC is kept in the warehouse only in anticipation of price rise, how shall we calculate the above reversal on monthly basis.

2.There is additional reversal of 5% of Common Credit as common credit may include credit attributable to non business purpose when input or input services used for partly for business and partly for non-business purposes.

Is this reversal of 5% of common Credit applicable in this case or for that matter in all the cases.

3.As per rule 42, in case the turnover of such tax period is not available then on the basis turnover of last tax period.

Now, how the gap between this reversal on presumptive basis and actual ought to be reversal to be taken care off. e.g. Turnover for the month of August was not available and hence reversal was done on the basis of figures for the month of July. But what happens in case ratio of exempt supplies to total supplies in the subsequent period is entirely different from the month of July due to variation in prices

Answer: Manner of determination of ITC reversal in respect of input and input services is specified in Rule 42. On the basis of this Rule Point wise reply of your query are as follows:-

1. Where there is no Exempt supply in the relevant tax period then there is no requirement for reversal of ITC for that months.

2. Additional reversal of 5% is required only when the input or input service also used for non business purpose.

3. The amount computed monthly would be only the provisional amount of ITC which shall be reversed for all the 12 months. At the end of the financial year, the assessee shall re-compute the amount of ITC finally reversed or paid according to sub rule (2) of Rule 42 for the current financial year based on the current year's total turnover of goods & services and current year's exempt supply.

where the amt calculated for reversal for whole FY exceeds the aggregate of reversal in each month then difference should be added in output tax liability for the month not later than September month following the end of the FY along with applicable interest.

where the aggregate of reversal monthly exceed the final reversal calculated on annually then excess reversal shall be claimed ITC not later than September month following the end of the FY. .(REPLY dt. 20/2/2018)