EXAMPLE-144

M/s Rubal manufacturing both taxable and exempted final products. The following are the informations for the month of November, 2018

Compute ITC apportioned for thr purpose of business ans for effecting supply other than exempted supply.

Answer

RULE 42. (Manner of determination of input tax credit in respect of inputs or input services and reversal thereof) of Chapter - V of CGST Rules, 2017  provides the manner of input tax credit, followings are the steps:-

Step 1:- First to determine total credit on inputs and input services in a tax period is denoted as (T).

Step 2:- calculate credit relating to Inputs/Input services out of (T) as attributable for 100% non-business purpose, denoted as (T1)

Step 3:- calculate credit relating to Inputs/Input services out of (T) as attributable for 100% exempt supplies, denoted as (T2)

Step 4:- calculate credit relating to Inputs/Input services out of (T) as not eligible for credit according to section 17(5), such as inward supply relates to motor vehicle and other conveyance Work contract services, others as specified in that section, denoted as (T3)

Step 5 :-  the Total credit (T) in step 1 after deducting above amount calculated as T1, T2 and T3 shall be   credited in E-credit ledger , be denoted as (C1)

                                              C1=(T-(T1+T2+T3)

Step 6:- calculate credit relating to Inputs/Input services out of (C1) as attributable for 100% used for taxable supplies (included zero rated supply), denoted as (T4)

              Even when exempted goods are supplies as zero rated supply ITC relates to such supply are also calculated in this step and eligible for ITC.

Step 7:- Common credit left after attribution of input tax credit relating to T4, be denoted as ‘C2’ and calculated as:

                                                        C2 = C1- T4

Step 8:- Calculate provisional amount of credit that relates to exempt supply denoted as (D1) out of above common credit (C2) for a tax period (month) on the basis of proportion of turnover of exempt supply (denoted as ‘E’ that is all supplies other than taxable supplies and zero rated supplies)or taxable supply(denoted as ‘F’ total turnover of such person) during such tax period. If the turnover of such tax period is not available then on the basis turnover of last tax period. Following is the formula:-

                                                                                 D1= C2*E/F

Step 9:- Common credit under ‘C2’ may include credit attributable to non business purpose when input or input services used for partly for business and partly for non-business purposes. The amount relates to credit attributable to such non business purpose denoted as ‘D2’ calculated on presumptive basis as follows:-

                                                                                          D2= C2*5%

Step 10:- Amount attributable to taxable supply including zero rated supply and business purpose denoted as (C3) is the amount remainder of the common credit after deducting D1 and D2 as follows-

                                                                      C3= C2-(D1+D2)

   Important notes on above calculation:-

·                     Credit (C3) computed separately for central tax, state tax, and union territory tax.

·                     The amount calculated as D1 and D2 which are already credited in e-credited ledger, shall be reversed and added to output tax liability of registered person in the tax period to which relates.

In accordance of above provision

In the given Example

  C1 (credit credited in E-credit ledger) = T (total credit on input) -  (T1 +T2+T3)

C1 (integrated tax credit credited in E-credit ledger) =23 lakh -3 lakh = Rs. 20 lakh

C2 (common credit ) = C1 – T4( attributable to taxable supply)

T4 amount of credit is full eligible foe ITC and already in E- credit ledger)

C2 (common credit) = 20 lakh -5 lakh = 15 lakh

Amount of credit that relates to exempt supply denoted as (D1) = C2*E/F

                                                                   D1 = 15 lakh *75 lakh/250 lakh = 4.5 lakh

Credit attributable to non business purpose (D2) = C2*5%

                                                                   D2 = 15 lakh *5%= .75 lakh

Amount attributable to taxable supply including zero rated supply and business purpose denoted as (C3) = C3= C2-(D1+D2)

                                    C3 = 15lakh –(4.5 lakh +.75 lakh) = 9.75 lakh

·                     Thus credit of ( D1 + D2) = 5.25 lakh which are already credited in e-credited ledger, shall be reversed and added to output tax liability of registered person in the tax period  of November to which it relates.