Reversal of credit u/s 42 on MEIS licence

ITC / Input 6667 views 23 replies

Anjali Satra

CA Final Student

25 Points Joined February 2020

Is there a need to reverse the credit u/s 42 of CSGT Act, 2017 for the exempted sales of MEIS Licence? Further no credit has been availed and utilised for making exempted supplies of MEIS licence as such licence is an incentive given to the exporter. Even as per section 17(2) which states that where the goods and services both are USED by registered person partly for affecting taxable supplies including zero rater supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much as is attributable to taxable supplies and zero rated supplies. But for selling MEIS licence no credit has been availed and utilised. But the Assessing Officer has reversed the itc u/s 17(2) on the ground that the MEIS scrips are earned by the taxpayer by exporting the goods over the period of time and therefore it can be rightly said that the input goods and input services which are used for export of goods have been used by the taxpayer for earning MEIS Scrips. Kindly help me out with this as whether the contention of AO is correct or not? If not then please provide the citation on which I can refer it to AO.

Replies (23)

Himanshi Garg

Ca Article

354 Points Joined May 2020

Have you taken ITC on the purchase of such licence as per the Invoice of the selling party or on the amount of duty incentive that such licence offered???

CA Akshay Hiregange

Partner - Audit & Assistance

4825 Points Joined December 2018

In my opinion, professional/consultant fees in relation to realisation/utilisation of MEIS scrip could be considered as directly attributable to exempt supplies.

Also, some related and unbifurcatable expenses (mainly admin expenses), telephone, internet, GST professional assistance fees, etc. could be considered as common credit for the purpose of ITC reversal. Although, this can be said to be completely attributable towards taxable services, as the incentive being applied for does not increase or reduce such expenses.

Anjali Satra

CA Final Student

25 Points Joined February 2020

I have not taken any ITC for purchase of license. All the ITC is related to purchase of goods.

CA Akshay Hiregange

Partner - Audit & Assistance

4825 Points Joined December 2018

Then there may not be any ITC to be reversed. Please also see my answer above.

Anjali Satra

CA Final Student

25 Points Joined February 2020

Thank You Sir for your valuable opinion

Himanshi Garg

Ca Article

354 Points Joined May 2020

I absolutely agree with the opinion of CA Akshay ji.
Moreover the goods purchased were not being used for the purpose of realising MEIS Licence. So there is no requirement to reverse the ITC.

MAHESH KHATRI

2 Points Joined January 2020

Dear CA Akshay Hiregange

there any Circular from CBIC or any noticeication for not reversal ITC Please if you have then give circular / Notification Number Please

CA Akshay Hiregange

Partner - Audit & Assistance

4825 Points Joined December 2018

No circular from CBIC to my knowledge. This is based on understanding the transaction and interpretation of law considering practical scnearios.

Sanjay Dwivedi

Advocate & Consultant

143 Points Joined March 2007

The department is asserting that even the credits relating to the purchase of inputs should be reversed. Its logic is that the inputs/goods which have been used for exports of goods have been used for earning MEIS scrips. In other words, the scrip has come into existence due to export of goods. Therefore anything that went into export of goods, is also connected with the scrip.

How to counter this argument?

CA Akshay Hiregange

Partner - Audit & Assistance

4825 Points Joined December 2018

Credit in relation to export of goods is clearly eligible based on section 16 of IGST Act.

MEIS scrip although is an exempt supply, the credit in relation to export of goods cannot be considered for ITC reversal as the credit is directly attributable to the goods and not the scrip, which in turn is fully eligible.

This may be one of the ways to confuse or harass the assessee, suggest you to go meet with higher authorities to resolve this faster.

Alternatively, as the law is clear, await for them to raise an SCN and respond to the same.

Sanjay Dwivedi

Advocate & Consultant

143 Points Joined March 2007

Thanks Akshay. My client has already received a notice. I am replying somewhat on the following lines: 1. The scrip was firstly supplied to me by the Government. Thus, its an inward supply to me. Government did not pay tax and I did not avail credit. 2. Now, I am selling the same scrip. 3. Thus, the credits relating only to the procurement and sale of the scrip could be denied. Export of goods was the consideration for which the government supplied me the scrip (rather earning of the foreign exchange). Inputs of the consideration have nothing to do with sale of the scrip. But I may have to argue this finally before Tribunal.

CA Akshay Hiregange

Partner - Audit & Assistance

4825 Points Joined December 2018

Yes Sanjay. There have been many instances where DGFT is not processing scrips. Also refunds being held. Exporters are given benefit on paper but in reality they face a lot of hardships to be globally competitive.

Prachi Bansal

3134 Points Joined December 2020

Can you please explain DGFT?

CA Akshay Hiregange

Partner - Audit & Assistance

4825 Points Joined December 2018

You would have to refer a book for the same or search for summaries as it is now something that can be responded over here. DGFT - Director General of Foreign Trade. Website - https://www.dgft.gov.in/CP/

Few Articles on FTP & Customs:

https://hiregange.com/a/impact-of-customs-on-gst

https://hiregange.com/a/foreign-trade-policy-ftp-201520-key-recent-updates-till-16042020

Hope this helps