ITC on Rice Mill Machineries - Capital Goods

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Arunachalam

Proprietor

121 Points Posted on 01 January 2024

Dear All:

A newly built rice mill purchased capital goods for converting paddy to rice and took credit of all ITC via 3B, which is still available in Electronic Credit Ledger. Question is - production commenced only after 6 months of its (capital goods) purchase, now the goods being sold are both exempted (rice) as well as taxable (Rice Bran) supplies, how to avail proportionate ITC now?

To be more specific about the query, ITC claimed around few lakhs in June last year from the purchase of capital goods and it is still available in Electronic Credit Ledger, as the production has just commenced in December 2023. As per the rule, when the capital goods are used for production of exempted and taxable, only proportionate ITC should be taken. Around 75% of the output supplies are exempted and the remaining is taxable, so, should 75% of the available ITC be reversed in December 3B? or is there any other calculation for taking proportionate ITC? Hope you understand my query. Please advise

Replies (5)

Quick Summary

A new rice mill is seeking guidance on claiming Input Tax Credit (ITC) for capital goods used in production. Production began six months after purchase, and the mill now supplies both exempted (rice) and taxable (rice bran) goods. The query focuses on how to correctly calculate and reverse proportionate ITC based on output supplies, referencing GST rules 42 and 43 for guidance on capital goods used for mixed supplies.

sabyasachi mukherjee

Profession

19978 Points Posted on 01 January 2024

Capital goods electronic ledger can be arranged . not very clear.

Suresh Kumar

Account

298 Points Posted on 02 January 2024

You are doing right as per GST Law.

Reversal on exempted goods, have to be done at the time of output exempted supply.

Reversal to be done as per Rule 42, 43 of GST Rule

RAJA P M

"Do the Right Thing...!!!"

77833 Points Posted on 02 January 2024

@ Mr Arunachalam,

You are exactly correct...

Reverse the ITC as per supply. And utlize the ITC when you supply Taxable goods and it's percentage of supply.

Abhishek H

64 Points Posted on 02 January 2024

Please refer Rule 43, take useful life of the capital goods as 5 years, take out common credit and calculate eligible/reversal of ITC.

Aashok Kumar Sharma

Finance/Compliance Consultant

75675 Points Posted on 07 November 2026

Depends on output taxability:

• Rice: unbranded, not pre-packaged and labelled, is exempt. Pre-packaged and labelled rice (up to 25 kg) is 5% (from 18 July 2022). By-products (bran, husk) have their own rates (husk exempt or 5%, rice bran 5%).

• If all outputs are taxable: full ITC on capital goods.

• If outputs are mixed (exempt loose rice plus taxable packed rice): common capital goods ITC must be apportioned under Rule 43. Credit is spread over 5 years (60 months), with the exempt-turnover share reversed monthly.

• If all outputs are exempt: ITC on the capital goods isn't available. Reverse the ITC taken.

• Practical: if the mill sells packed and labelled rice (taxable at 5%), much of the ITC can be used. The inverted duty refund under Sec 54(3) excludes capital goods ITC, so excess capital-goods ITC isn't refundable.