QUESTION

One of the company is providing taxable as well as exempted serice. In the financial tear 2017-18 they have not availed any ITC on the input services. however they have paid GST on cerianin inputs under RCM. the GST paid under RCM has been taken as ITC and used for discharging outward liability. Now please adavice as to (i) whether assessee is required to mainatin seperate register to show that the input is exclusively used for taxable service or exemted services, to avaoid reversal of proportinate ITC under section 17(2) ? (ii) Whether they require to give any decalration / undrtaking to the GST officer to avail above benefit , if available? (iii) whether tax paid under RCM is treated as ITC on inputs for all purpose? (iv) whether the company is required to revers proportionate ITC under Section 17(2) on the amount availed as ITC from the tax paid under RCM and utilized for discharing outward liability.?

ANSWER

Facts of the case: ABC is providing taxable as well as exempted service. In the financial year 2017-18 they have not availed any ITC on the input services, however they have paid GST on certain inputs under RCM. The GST paid under RCM has been taken as ITC and used for discharging outward liability. (i) Whether assessee is required to maintain separate register to show that the input is exclusively used for taxable service or exempted services, to avoid reversal of proportionate ITC under section 17(2)? (ii) Whether they require to give any declaration / undertaking to the GST officer to avail above benefit , if available? (iii) Whether tax paid under RCM is treated as ITC on inputs for all purpose? (iv) Whether the company is required to reverse proportionate ITC under Section 17(2) on the amount availed as ITC from the tax paid under RCM and utilized for discharging outward liability.?

Law Applicable: SECTION 9 OF CGST ACT

(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.


Reply: Section 17 puts restriction on ITC if the input is not used for providing taxable service.
Rule 42 contains relevant provision for reversal of credit on common input and input services.
Rule 43 deals with credit on capital goods used for taxable and exempted supply. Since your question is specifically related to input services so we are giving reply of it.

Take credit of the full amount if the input /input service is used for providing taxable supply. Don't take credit (reverse if taken ) on the input /input service if it is directly related to exempted/non-taxable supply. Reverse credit on a pro-rata basis if it is used as common service /input. This is pro-rata to turnover or may be on the basis of material consumption (if possible).

The same is illustrated as follows:

R = Take full credit

Y = No Credit

Z = Pro rata of (A + B + E + G)

W = Pro Rata of (B + C + H + I)

U = Pro rata of all

V = Pro rata of (G + H + I)

NOTE: It is better if you are maintaining some documentation to prove your case so that the same may be produced at the time of audit.

Further there is no need to file any intimation or declaration the same is covered under self assessment.  (Reply dt. 13/05/2021)