Page 21 - Chap7 ITC

06: Rule 42: Manner of determination of ITC of Inputs/Inputs services & reversal thereof

Q.19
A garment factory receives a Government order for making uniforms for a commando unit. This
supply is exempt from tax under a notification issued under section 11 of the CGST Act. The fabric is
exclusively procured for such supply, but thread and lining material for the collars are the ones which are
used for other taxable products of the factory as well.
The turnover (exclusive of taxes) of the other products of the factory and exempted uniforms in July is ₹ 4
crore and ₹ 1 crore respectively, the ITC on thread and lining material procured in July is ₹ 5,000 and ₹ 15,000
respectively. Calculate the amount of eligible ITC in respect of procurement of thread and lining material.
[Study Mat]

Answer:
Ü Thread and lining material are inputs which are used for making taxable as well as exempt supplies.
Ü Therefore, credit on such items will be apportioned and credit attributable to exempt supplies will be reversed as
per Rule 42.
Ü Credit attributable to exempt supplies = Common credit x (Exempt turnover/ Total turnover)
Ø Common credit = ₹ 15,000 + ₹ 5,000 = ₹ 20,000
Ø Exempt turnover = ₹ 1 crore
Ø Total turnover = ₹ 5 crore [₹ 1 crore + ₹ 4 crore]
Ü Credit attributable to exempt supplies = (₹ 1 crore / ₹ 5 crore) x ₹ 20,000 = ₹ 4,000.

Ü Thus, Ineligible credit of ₹ 4,000 will be reversed in Form GSTR-3B & Credit of ₹ 16,000 will be eligible credit
for the month of July.

Quick Revision Points: Credit attributable to exempt supplies = Common credit x (Exempt turnover/
Total turnover)

Q.20
X, a manufacturer of roofing sheets, has total ITC of ₹ 1,60,000 available with him on 01st June. He
provides the following information pertaining to the goods and services procured during the month of June:
(1) Input tax on raw materials is ₹ 40,000. The raw material is used for both taxable and exempt activity.
(2) Input tax on catering services procured from ‘Harvest Caterers’ in connection with his housewarming
ceremony is ₹ 10,000.
(3) Input tax on raw materials used in manufacture of exempt supplies of ₹2 lakh is ₹ 20,000.
(4) Input tax on cosmetic and plastic surgery of manager of the factory is ₹30,000.
Total turnover for the month of June is ₹ 60 lakh exclusive of tax.
Compute the ITC available for the month of June and net GST payable from Electronic Cash Ledger by X for
the month of June. Rate of GST is 18% (Ignore CGST, SGST or IGST for the sake of simplicity).
Subject to the information given above, assume that all the other conditions necessary for availing ITC have
been fulfilled. All the purchases are made from registered suppliers.[Study Mat] [CA Final MTP 2 May 25]
Answer :- Computation of ITC available and net GST payable from Electronic Cash Ledger for the
month of June:
Particulars Amount (₹) Amount (₹)
GST on taxable turnover for the month of June [₹ 60,00,000 × 18%] 10,80,000

Less: ITC available for June month in terms of rule 42
ITC available in the Electronic Credit Ledger on 1st June 1,60,000
Add: Total ITC credited to the Electronic Credit Ledger in the month of June 40,000
[Refer working note below]

Less: ITC out of common credit attributable to exempt supply [Refer working (1,290) (1,98,710)
note below]

Net GST payable from Electronic Cash Ledger 8,81,290

V’Smart Academy 7.19 CA Vishal Bhattad 09850850800