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2019 (10) TMI 786 - AAR - GSTInput tax credit - by-product Cotton Seed Oil Cake - taxable at 0% - Apportionment Input Tax Credit u/ s 17 of GST Act - treatment of claiming of Input Tax Credit on Raw Cotton purchased from agriculturist - reverse charge mechanism - treatment of claiming of Input Tax Credit on Plastic Bags (Bardana) which is only used for packing of the cotton seed oil cake - reversal of Input Tax Credit for the period of 2017-18, 2018-19 as per the Rule 42 of the CGST Rules, 2017. HELD THAT - That the applicant is engaged in the business of manufacturing and production of Loose Cotton, Cotton Seeds, Cotton Seed Oil and by-product Cotton seed oil cake at Sangaria in the State of Rajasthan and has been granted a license for manufacture and production of same. The Loose Cotton, Cotton Seeds, Cotton Seed Oil are taxable at the rate of 5% under GST and Cotton seed oil cake is taxable at the nil rate of GST - the applicant is entitled to take credit of the ITC charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. Thus, where any goods or services or both are used by the registered person partially for taxable supply including zero rated supply and partially for the exempted supply then in that case the claim of ITC shall be restricted to the extent of taxable supply including zero rated supply. Reversal of input tax credit - HELD THAT - In view of the provisions of Section 17 (2) of GST Act, 2017 read with rule 42 of GST Rules, 2017 as stated above, the amount of credit shall be restricted to so much of the input tax is attributable to the said taxable supplies including zero rated supplies. The applicant has to reverse the amount of credit used in the manufacture and sell of the product which attracts nil rate or exempted from GST. Raw cotton is purchased by the applicant from agriculturist - HELD THAT - The raw cotton is purchased by the applicant from agriculturist and tax @ 5% is paid under Reverse Charge Mechanism by him. They are eligible for claiming of ITC as per Section 16, however, the credit is to be restricted to the extent of input tax attributable to the taxable supplies including zero rated and has to reverse the amount of input tax attributable to the exempted supply i.e. Cotton seed oil cake in terms of Section 17 (2) of GST Act, 2017. Plastic bags (Bardana) which is used only for packing of the Cotton Seed oil Cake - HELD THAT - The Plastic bags (Bardana) which is used only for packing of the Cotton Seed oil Cake is an integral part of the Cotton Seed oil Cake and Cotton Seed oil Cake cannot be sold without plastic bags. Therefore, though they are entitled to take credit of input tax suffered on Bardana but will have to reverse the same as per provisions of Section 16 and 17 of GST Act, 2017. The issue i.e. whether the applicant has to reverse the Input Tax Credit for the period of 2017-18, 2018-19 as per the Rule 42 of the CGST Rules, 2017? is not covered under Section 95(a) of GST Act therefore no ruling is to be given on this issue.
Issues Involved:
1. Treatment of claiming Input Tax Credit (ITC) on by-product Cotton Seed Oil Cake taxable at 0%. 2. Applicability of Apportionment of Input Tax Credit under Section 17 of GST Act on Cotton Seed Oil Cake. 3. Treatment of claiming ITC on Raw Cotton purchased from agriculturists under Reverse Charge Mechanism. 4. Treatment of claiming ITC on Plastic Bags (Bardana) used for packing Cotton Seed Oil Cake. 5. Requirement to reverse ITC for the periods 2017-18 and 2018-19 as per Rule 42 of CGST Rules, 2017. Detailed Analysis: 1. Treatment of claiming Input Tax Credit on by-product Cotton Seed Oil Cake taxable at 0%: The applicant, engaged in the manufacture of Loose Cotton, Cotton Seeds, Cotton Seed Oil, and by-product Cotton Seed Oil Cake, sought clarity on ITC for the exempted by-product Cotton Seed Oil Cake. Section 16(1) of the GST Act, 2017 entitles a registered person to take credit of input tax charged on any supply of goods or services used in the course of business. However, as per Section 17(2) of the GST Act, 2017, the amount of credit shall be restricted to the input tax attributable to taxable supplies. Therefore, the applicant must reverse the ITC used in the manufacture and sale of Cotton Seed Oil Cake, which attracts a 0% GST rate. 2. Applicability of Apportionment of Input Tax Credit under Section 17 of GST Act on Cotton Seed Oil Cake: Section 17(2) of the GST Act, 2017, and Rule 42 of the GST Rules, 2017, mandate that ITC must be apportioned when goods or services are used partly for taxable supplies and partly for exempt supplies. The applicant must reverse the ITC attributable to the exempt supply of Cotton Seed Oil Cake. The ruling confirms that the provision of Apportionment of Input Tax Credit under Section 17 of the GST Act will be applicable to the by-product Cotton Seed Oil Cake. 3. Treatment of claiming ITC on Raw Cotton purchased from agriculturists under Reverse Charge Mechanism: The applicant is eligible to claim ITC on Raw Cotton purchased from agriculturists, on which tax at 5% is paid under the Reverse Charge Mechanism, as per Section 16 of the GST Act, 2017. However, the credit is to be restricted to the extent of input tax attributable to taxable supplies, including zero-rated supplies, as per Section 17(2) of the GST Act, 2017. The applicant must reverse the ITC attributable to the exempt supply of Cotton Seed Oil Cake. 4. Treatment of claiming ITC on Plastic Bags (Bardana) used for packing Cotton Seed Oil Cake: The ITC on Plastic Bags (Bardana) is eligible under Section 16 of the GST Act, 2017. However, since the applicant uses Plastic Bags exclusively for packing Cotton Seed Oil Cake, which is exempt from GST, they must reverse the ITC on Plastic Bags as per the provisions of Section 17(2) of the GST Act, 2017. 5. Requirement to reverse ITC for the periods 2017-18 and 2018-19 as per Rule 42 of CGST Rules, 2017: The authority is mandated to pronounce rulings on matters currently undertaken or proposed to be undertaken. The issue of whether the applicant must reverse the ITC for the periods 2017-18 and 2018-19 as per Rule 42 of the CGST Rules, 2017, is not covered under Section 95(a) of the GST Act. Therefore, no ruling is provided on this issue. Ruling: As per Section 17(2) of the GST Act, 2017, the amount of credit shall be restricted to the input tax attributable to taxable supplies, including zero-rated supplies. The applicant must reverse the ITC attributable to the supply of Cotton Seed Oil Cake, which is exempt from GST, following the provisions and procedures under Section 17(2) of the GST Act, 2017, read with Rule 42 of the GST Rules, 2017. The applicant is eligible to claim ITC on Raw Cotton purchased from agriculturists under the Reverse Charge Mechanism, but the credit must be restricted to the input tax attributable to taxable supplies. The ITC on Plastic Bags (Bardana) must also be reversed as they are used exclusively for packing the exempt Cotton Seed Oil Cake. No ruling is given on the issue of reversing ITC for past periods under Section 95(a) of the GST Act, 2017.
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