QUESTION

This pertains to reversal of ITC on common input and input services. Which figures are to be taken in the formula (T 4). Please give the detailed reply.

ANSWER

Law Applicable:

1. Clause (f) of sub-rule(1) to rule 42 CGST defines T4 as follows;

" (f) the amount of input tax credit attributable to inputs and input services intended to be used exclusively for effecting supplies other than exempted but including zero rated supplies, be denoted as 'T4' "

2. Clause (h) to the same rule 42(1) CGST is laid as under;

" (h) input tax credit left after attribution of input tax credit under clause (f) shall be called common credit, be denoted as 'C2' and calculated as-

C2 = C1- T4; "

Interpretation:

ITC which can exclusively be attributable to those inputs and input services that are intended to be used wholly and exclusively for the purpose of effecting a supply other than exempt supply, that is a taxable supply including zero rated supply, shall be denoted by T4 in formula for reversal of ITC on common input and input services as laid under rule 42.

Since these inputs are used wholly and exclusively for a taxable supply, therefore they are not covered under the ambit of sub-section (1) and (2) of section 17 CGST and thus ITC availed on these inputs and input services is not liable to be reversed under rule 42.

T4 is the amount of ITC out of total ITC which, without a doubt, is eligible to be claimed by the registered person in his electronic credit ledger since it pertains to those input and input services which are used towards making a taxable supply including zero rated supply.

Further, clause (h) of rule 42(1) CGST defines the "Common Credit" which shall be liable for proportionate reversal under section 17(1) and (2). It is clearly defined in this clause that T4 shall be excluded from the amount of Common Credit and therefore proportionate reversal under this rule shall not be calculated on the amounts of T4.

Conclusion:

Under clause (f), T4 is amount of ITC out of the total ITC which is attributable to those inputs and input services which are wholly and exclusively used towards effecting a supply other than exempt supply, including a zero rated supply and by the virtue of clause (h) this amount is not a part of Common Credit and therefore not liable to proportionate reversal u/s 17(1) and (2) read with rule 42 CGST. In other words, the registered person is entitled to claim this ITC in full. (Reply dt. 04/02/2022)