Rule 42 is considered as a one of the most complex concept in a GST. Rule 42 of the CGST Rules, 2017 envisages about the ‘manner of determination of input tax credit in respect of input and input service’. Before coming to the topic let’s take a brief of the roots.
Section 17(1) of the CGST Act, 2017 says that “Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business”.
Further section 17(2) of the CGST Act, 2017 “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.”
There’s no question arise in the rationale that the input tax credit must be restricted to the so much amount of ITC that is attributable to the business and is used to make a taxable supplies.
Section 16 of the CGST Act governs the availability of ITC. It is important to note that section 16 nor the section 17 distinguish between the ITC to be taken for the tax paid under forward charges or reverse charges. Therefore all the rules that are made for the section 16 & 17 shall apply while taking ITC of the taxes paid weather in a forward charge or reverse charge.
As rule 42 applies on a input tax credit in respect of inputs or input services, which attract the provisions of sub-section (1) or sub-section (2) of section 17, it shall be applicable both the time while taking ITC.