LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Input tax in taxable raw and exempt production

satish (self) (23 Points)

30 March 2018

I am in Haryana and want to purchase Cotton Seed from Andha Prdesh (IGST 5%). I want to process same in my oil mill as Cotton Seed oil (qty 8%) and Cotton Seed Cake (qty 92%). As Cotton Seed oil is in segment of 5% GST and Cotton Cake is in exempt category. Than is there any fixed percentage of input tax credit of my purchases of cotton seed?

Reply
Follow
Share

6 Replies

A.Kishore Kesav (807 Points)
Replied 30 March 2018

Yes...Ur purchase of raw material (cotton seed) has 5% IGST...which is used for furtherance of Ur business...thus the entire 5% of the raw material is available as input tax credit...as Ur sales is exempted...u can get those input credit by way of refund.

RAMESH KUMAR SINGLA (PROFESSIONAL) (1777 Points)
Replied 30 March 2018

I think your case falls under section 17(2) of CGST Act. Therefore, you are entitled to ITC only of tax charged on 8% quantity of seeds. The remaining quantity is being used in supply of exempted goods, therefore, is not eligible for ITC.

1 Like

harsh (Business) (105 Points)
Replied 30 March 2018

Ramesh sir, your reply is amusing. Could you please elaborate how only 8 % will be eligible. ? Because the seller will upload complete invoice and we get full ITC viab gstr2. the oil output can be 9-11 also..

RAMESH KUMAR SINGLA (PROFESSIONAL) (1777 Points)
Replied 31 March 2018

There is nothing amusing in my reply Harsh. It is a case where common inputs (cotton seeds) are being purchased and used for supply of taxable (cotton seed oil) and exempted goods (cotton seed cake). Therefore, the tax suffered on the portion of the inward supply of cotton seed which is used in the manufacture and supply of exempted goods, is not eligible for ITC. This is a restriction imposed under Section 17(2). Rule 42 of the CGST Rules provides for the mechanism to compute the amount of ITC to be attributed for business purposes.

harsh (Business) (105 Points)
Replied 31 March 2018

So in the following case what will be eligible ITC..? - Purchase - 1quintal x 1800/- = 1800 Tax @ 5% = 90 Rs. GST. Sales - Oil 8% - 8kg * 70/- = 560/- Tax gst @ 5% - 28/- payable Rest 92% tax-free at 1500/- quintal. So as per calculation, Tax charged on 8% of 1quintal Seeds, = 90*0.08 =7.2Rs. I will be eligible for 7.2Rs ITC Only..?? I have to pay 28-7.2 = 20.8/- GST Again as sales..????

KANWALJEET SINGH (PRACTICING CHARTERED ACCOUNTANT) (25 Points)
Replied 19 May 2019

I COMPLETELY AGREE WITH YOU SIR,

I THINK IN THIS CASE, I CAN COVER 92% OF ITC IN " INPUT TAX ATTRIBUTABLE TO INPUTS USED EXCLUSIVELY FOR EFFECTING EXEMPT SUPPLIES" AS PER RULE 42

AND BALANCE 8% IN" INPUT TAX ATTRIBUTABLE TO INPUTS USED EXCLUSIVELY FOR EFFECTING TAXABLE SUPPLIES" AS PER RULE 42

I CAME TO THIS CONCLUSION ONLY BECAUSE IF I COVER THIS CASE IN "COMMON CREDIT" THEN IN CASE IF I HAD ONLY EXEMPT SUPPLIES DURING A PARTICULAR TAX PERIOD(SAY OF COTTON SEED CAKE ONLY), THEN AS PER RULE 44, MY WHOLE ITC SHALL LAPSE= COMMON CREDIT*(EXEMPT SUPPLY/AGGREGATE TURNOVER DURING TAX PERIOD)