2019 (9) TMI 1120 - AAR - GST

Input tax credit - capital goods and input services that are common to the production of both taxable and exempted goods - extent and proportion the input tax credit is admissible on such capital goods and input services - HELD THAT - In the Applicant s case, the commercial production of taxable goods started in December 2018. The commercial production of the exempt goods did not begin in 2018-19. The value of D1f therefore, is zero during the tax periods in 2018-19. No amount of the common credit of input tax on input services available during 2018-19 should, therefore, be attributed towards exempt supplies. In other words, subject to the provisions under rule 42(2) of the GST Rules, the entire input tax on input services is an admissible credit during 2018-19 - It is presumed that the Applicant does not make any exempt supplies other than the ones it manufactures. Based on the proviso to rule 43(1)(d) of the GST Rules and further prescriptions under rule 43(1)(e), (f) and (g) of the GST Rules, the Applicant is required to compute the admissible amount of the input tax credit on the capital goods used for both taxable and exempt supplies in the tax periods over the useful life of such capital goods, calculated from the date of invoice. The Applicant shall reverse the balance amount of the input tax on the said capital goods that has already been credited to its electronic credit ledger - As the commercial production of exempted goods did not begin in 2018-19, the entire input tax on input services, subject to the provisions under rule 42(2) of the GST Rules, is an admissible credit during 2018-19.

Summary

Issues:
1. Admissibility of the Application

Admissibility of the Application:
The Applicant, engaged in manufacturing taxable and exempted goods, sought an advance ruling on the admissibility of input tax credit on common capital goods and input services. The Applicant's application was admitted as the issues raised were not pending or decided under the GST Act, and no objections were raised by the Revenue officer.

Submissions of the Applicant:
The Applicant argued that input tax credit apportionment should follow GST Act provisions and rules. They contended that the formula under rule 43 for capital goods should apply post the start of commercial production. For input services, the Applicant claimed eligibility for full credit until exempt goods production commenced.

Submissions of the Revenue:
The Revenue officer proposed apportioning input tax credit based on rule 43(1)(d) for capital goods and rule 42 for input services. They emphasized attributing input tax on capital goods to taxable goods production and subsequent apportionment for exempted goods. The Revenue supported full credit for input services until exempt goods production.

Observations and findings of the Authority:
The Authority agreed with the Revenue on apportioning input tax credit for capital goods under rule 43(1)(c) and the useful life calculation. The Applicant was directed to report details of supplies for credit ledger updates. The ruling outlined the methodology for apportioning input tax credit on capital goods and input services, emphasizing adherence to GST Rules provisions.

Conclusion:
The ruling mandated the Applicant to compute and reverse input tax credit on common capital goods as per rule 43 provisions. Full credit for input services until exempt goods production began was allowed for the relevant tax period. The ruling's validity was subject to GST Act provisions until declared void.