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CA Final · Indirect Tax Laws · Input Tax Credit

Tungabhadra Foods Ltd's ISD in Bengaluru has Rs 1,00,000 of integrated tax credit on an input service that is attributable to all recipients with the same PAN. Recipients and relevant period turnover: P (Karnataka) Rs 2 crore, Q (Tamil Nadu) Rs 3 crore, R (Kerala, engaged only in exempt supplies) Rs 5 crore. R was operational in the current year. Which distribution is correct?

P gets Rs 20,000, Q Rs 30,000 and R Rs 50,000, all as integrated tax. The formula includes recipients making exempt supplies in the aggregate turnover, so T is Rs 10 crore, and integrated tax credit is distributed as integrated tax to every recipient.

  1. AP Rs 20,000, Q Rs 30,000, R nil, since R makes exempt supplies
  2. BP Rs 40,000, Q Rs 60,000, R nil, as exempt units are excluded from T
  3. CP Rs 20,000, Q Rs 30,000, R Rs 50,000, all as integrated taxCorrect
  4. DP Rs 20,000 as integrated tax, Q and R Rs 80,000 as central tax

Explanation

For credit attributable to all recipients, T is the aggregate turnover of all recipients operational in the current year, including those making exempt supplies. T is 10 crore, so P gets 2/10 x 1,00,000 = 20,000, Q gets 30,000 and R gets 50,000. Integrated tax credit is distributed as integrated tax to every recipient. Excluding R wrongly shrinks T and inflates the shares of P and Q.

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