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Reversal under rule 42

Harsh Jhawar (student) (36 Points)

28 February 2020

If any dealer purchase cotton seeds of rs 1000000. He sale out 50% as it is and for remaining 50% he process it and 2 finished goods are prepared oil and cake. Now my quEry is while computing common credit we will take it of that 50% raw material which is processed or of full 100%

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4 Replies

CA Akshay Hiregange (Partner - Audit & Assistance) (4515 Points)
Replied 28 February 2020

Dear Harsh please provide the HSN & tax rates for cotton seeds (purchase) and outward HSN & rate for oil & cake. This will help answer the question.

P.S. Do not forget about Rule 43 which is similar concept for Capital goods, although computation is completely different and cumbersome.

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Harsh Jhawar (student) (36 Points)
Replied 28 February 2020

On cotton seed 5% and oil 18%

CA Akshay Hiregange (Partner - Audit & Assistance) (4515 Points)
Replied 02 March 2020

Dear Harsh, where there is no ITC restriction on the goods, and both are taxable under GST (rate does not matter), then full ITC should be eligible.

Harsh Jhawar (student) (36 Points)
Replied 08 March 2020

Pls suggest regarding my query.
A Dealer who runs an oil Mill purchases a cotton seed which is taxable @ 5%.
For example we may consider he purchase cotton seed for rs 1000000 and gst on it is rs. 50000.
Now he sale out 50% cotton seed as it is after adding his profit and for remaining 50% he put into crushing and two products get manufactured 1 is Oil and another is Cotton cake. Here cotton cake is exempted and oil is taxable from the manufacturing process 92% cake is manufactured and only 8% oil is manufactured. Now he has to make reversal of itc so my query is will he be able to take 50% itc fully which he have sold out as it is and for remaining 50% Rule 42 of gst reversal will apply or for full 100% Itc