Synopsis: The Hon’ble AAR, Rajasthan in the matter of M/s. Parmod Kumar Singala in Advance Ruling No. RAJ/AAR/2019-20/18 decided on August 22, 2019 held that the Applicant is eligible to claim ITC on raw cotton purchased from agriculturist paying 5% GST under Reverse Charge Mechanism (“RCM”) under Section 16 of the Central Goods and Service Tax Act, 2017 (“CGST Act”)/ Rajasthan Goods and Service Tax Act, 2017 (“RGST Act”). However, the amount of credit shall be restricted to so much of the input tax that is attributable to the taxable supplies including zero-rated supplies as per Section 17(2) of the CGST Act/ RGST Act.
Facts:
M/s. Parmod Kumar Singala (“the Applicant”) is engaged in the business of manufacturing and production of Loose Cotton, Cotton Seeds, Cotton Seed Oil and by-product Cotton seed oil cake from raw cotton (NARMA) at Sangaria in the State of Rajasthan. The Raw Cotton (NARMA), Loose Cotton, Cotton Seeds, Cotton Seed Oil is taxable at the rate of 5% under GST and Cotton seed oil cake is taxable at the rate of 0% under GST.
The Applicant has been granted a license for manufacture and production of Loose Cotton, Cotton Seeds, Cotton Seed Oil and by-product Cotton seed oil cake from raw cotton (NARMA) at Sangaria in the State of Rajasthan by the Rajasthan Government.
Issues involved:
- What will be the treatment of claiming ITC under Section 16 of the CGST Act/ RGST Act in regard to by-product Cotton Seed Oil Cake which is taxable at 0%?
- Whether the provision of Apportionment ITC under Section 17 of the CGST Act will be also applicable to the by-product Cotton Seed Oil Cake?
- What will be the treatment of claiming of ITC on Raw Cotton purchased from agriculturist on whom tax @ 5% is paid under RCM?
- What will be the treatment of claiming of ITC on Plastic Bags (Bardana) which is only used for packing of the cotton seed oil cake?
- Whether the Applicant has to reverse the ITC for the period of 2017-18, 2018-19 as per the Rule 42 of the Central Goods and Service Tax Rules, 2017 (“CGST Rules”)?
Held:
The Hon’ble AAR, Rajasthan in Advance Ruling No. RAJ/AAR/2019-20/18 decided on August 22, 2019 held as under:
Question 1
- As per Section 16 of the CGST Act/ RCGST Act, the Applicant is entitled to take credit of the ITC charged on any supply of goods or services or both to the Applicant which are used or intended to be used in the course or furtherance of his business.
- As per Section 17(2) of the CGST Act/ RCGST Act, where any goods or services or both are used by the registered person partially for taxable supply including zero-rated supply and partially for the exempted supply, then, in that case, the claim of ITC shall be restricted to the extent of taxable supply including zero-rated supply only, meaning thereby, no credit available in case of exempted products i.e. by-product Cotton Seed Oil Cake which is taxable at 0%.
Question 2
- In view of the provisions of Section 17(2) of CGST Act/ RGST Act read with rule 42 of CGST Rules/ RGST Rules, the amount of credit shall be restricted to so much of the input tax is attributable to the said taxable supplies including zero-rated supplies. The Applicant has to reverse the amount of credit used in the manufacture and sale of the product which attracts nil rate or exempted from GST.
Question 3
- The raw cotton is purchased by the Applicant from agriculturist and tax @ 5% is paid under RCM by him. The Applicant is eligible for claiming of ITC as per Section 16 of the CGST Act/ RCGST Act, however, the credit is to be restricted to the extent of input tax attributable to the taxable supplies including zero-rated supplies only and has to reverse the amount of input tax attributable to the exempted supply i.e. Cotton seed oil cake in terms of Section 17(2) of CGST Act/ RCGST Act.
Question 4
- The Plastic bags (Bardana) which is used only for packing of the Cotton Seed oil Cake is an integral part of the Cotton Seed oil Cake and Cotton Seed oil Cake cannot be sold without plastic bags. Therefore, though they are entitled to take credit of input tax suffered on Bardana but will have to reverse the same as per provisions of Section 16 and 17 of CGST Act/ RCGST Act.
Question 5
- The issue is not covered under Section 95(a) of CGST Act/ RGST Act, therefore, no ruling was given on this issue.
Relevant provisions:
Section 16(1) of CGST Act/ RGST Act:
“16. Eligibility and conditions for taking input tax credit.
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”
Section 17(2) of CGST Act/ RGST Act:
“17. Apportionment of credit and blocked credits.
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.”