ITC Reversal on sale of maida

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A biscuit manufacturer is seeking clarification on whether they need to reverse Input Tax Credit (ITC) on general purchases like wrappers and sugar, following the sale of exempt maida during FY 2018-19. While maida itself was exempt and no ITC was claimed on its purchase, the question is whether Rule 42 of the CGST Rules applies to common ITC attributable to this exempt supply. The general consensus suggests that if the purchases are primarily for the manufacturing of biscuits (a taxable supply), reversal might not be necessary, but the specifics of Rule 42 regarding common credit and exempt supplies should be carefully reviewed.

Reddy Sandeep

Reddy Sandeep (Querist)

15 November 2021 I am a manufacture of biscuits. during the FY 2018-19 I sold biscuits and paid GST as per the applicable rates. and also I sold some Maida which is exempt. now do I need to reverse ITC on other purchases like Wrapper, Sugar, Vanaspathi, etc., in accordance with Rule 42? because while purchasing maida I didn't receive ITC, because it is exempt.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

15 November 2021 No need for such reversal as all the purchase related to biscuits manufacturing.

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B Sathyanarayanan

B Sathyanarayanan (Expert)

15 November 2021 iFor Input goods and services: Rule 42 of the CGST Rules 2017 prescribe the ITC reversal on the supplies that are exempt or used for personal consumption. As per Rule 42, reversal is required for that portion of common credit which is attributable to exempt supplies or for non-business use and so u can reverse it under ineligible

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