QUESTION

Mr. A is providing the below services: Case I 1. Outward taxable services 2. Exempt supplies. 3. Outward supplies of services on which recipient is liable to pay GST under RCM. Case II 1. Outward taxable services 2. Outward supplies of services on which recipient is liable to pay GST under RCM. Query: 1. In case I, does the value of supplies made, on which recipient is liable to pay GST under RCM be included in the value of exempt supplies for the purpose of calculation of ITC reversal under Rule-42 of CGST rules? If the answer to the query 1 is affirmative, should he need to bifurcate Inter-state and intra-state supplies made under RCM for the purpose of calculation of proportionate ITC reversal under IGST, CGST and SGST head or he has to take total value of supplies under each head. For e.g.: The total value of outward supplies of services on which recipient is liable to pay GST under RCM is Rs 100,000/- comprising of Rs 70,000/- inter-state and Rs 30,000/- intra-state supply. Can he take Rs 70,000/- for computing reversal under IGST and Rs 30,000 for CGST and SGST reversal. Or he has to take Rs 100,000/- under each three heads. Also, the value of total turnover will be work out accordingly. 2. In case II, does he require to make reversal of ITC proportionate to the value of services on which recipient is liable to pay GST under RCM?

ANSWER

Facts of the case:
Taxable Person is providing 3 supplies, first being taxable, second being exempt and third being liable to RCM. To check the reversal of ITC according to section 17 and rule 42/43.

Law Applicable:

Sub section (3) of section 17 CGST is laid as under
"The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building."

Interpretation:

As per section 17(3) CGST, supplies on which RCM is liable to be paid by the recipient shall also be included in the value of exempt supplies and reversal of ITC shall be done as such.

Conclusion:
So, to answer your questions;

Question 1: In case I, does the value of supplies made, on which recipient is liable to pay GST under RCM be included in the value of exempt supplies for the purpose of calculation of ITC reversal under Rule-42 of CGST rules?

Answer 1: Yes. As per section 17(3) the RCM outward supplies shall be treated as exempt supplies for the purpose of reversals under section 17.

Question 2: If the answer to the query 1 is affirmative, should we need to bifurcate Inter-state and intra-state supplies made under RCM for the purpose of calculation of proportionate ITC reversal under IGST, CGST and SGST head or we have to take total value of supplies under each head.

Answer 2: No, the bifurcation of supplies on the basis of inter and intra state shall not be done. The formula prescribed under rule 42 mandates the exempt turnover to be taken in total rather than splitting the same on inter state and intra state basis. Therefore in your example, a total of 1,00,000 shall be taken in the formula under rule 42.

Question 3: In case II, does he require to make reversal of ITC proportionate to the value of services on which recipient is liable to pay GST under RCM?

Answer 3: In a case where the taxable person makes only two supplies, one being taxable and the other being covered in RCM the reversal as per section 17 and rule 42/43 is required. (Reply dt. 21/01/2022)