G.G.GUPTA & Associates Advocates & Tax Consultants (GST & Custom) Office:-302, Aggrawal Tower, Netaji Subesh Place, Pitampura, New Delhi-34 Mobile No 8459466042

G.G.
GUPTA & Associates
Advocates & Tax Consultants (GST & Custom)
Office :- 302,Aggrawal Tower, Netaji Subesh Place, Pitampura, New Delhi-34
Mobile No 8459466042
OP I N I O N
This Opinion has been sought by the Querist on the following GST issue:
We want Legal Advice from you on following points:-
1. We purchase the paper material from Overseas and sale it in domestic
market but some time customers want material in small size rolls or in
Reams shape the we supply them after cut the rills in small size rolls or in
Reams but in this process some wastage in there and we sale this waste
paper to waste paper dealer but HSN CODE of waste paper is different and
tax rate of the waste paper is also different . Please advice us we can change
the HSN CODE of that waste material and sale it in lower rate GST or not ?
2. We purchase the stock lot paper material from overseas and some time
find low grade material and sale the material below purchasing cost in this
case input GST will be reverse or not ?
Please advice us as soon as possible.
a. Ineligible input tax credit (hereinafter referred to as “ITC”)
It is pertinent to note that Section 17(5) of the Central Goods and Services Tax Act
(hereinafter referred to as the “CGST Act”), 2017 restricts the eligibility of ITC on
certain specified goods and services. For ease of reference, the extract of Section
17(5) of the CGST Act is reproduced below:
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and

subsection (1) of section 18, input tax credit shall not be available in respect of the
following, namely:—
(a) motor vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods;
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic
and plastic surgery except where an inward supply of goods or services or both of a
particular category is used by a registered person for making an outward taxable
supply of the same category of goods or services or both or as an element of a taxable
composite or mixed supply;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where––
(A) the Government notifies the services which are obligatory for an employer to
provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or both of a particular category is used
by a registered person for making an outward taxable supply of the same category
of goods or services or both or as part of a taxable composite or mixed supply; and
(iv) travel benefits extended to employees on vacation such as leave or home travel
concession;
(c) works contract services when supplied for construction of an immovable property
(other than plant and machinery) except where it is an input service for further
supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account including
when such goods or services or both are used in the course or furtherance of
business.
Explanation.––For the purposes of clauses (c) and (d), the expression
“construction” includes re-construction, renovation, additions or alterations or
repairs, to the extent of capitalisation, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on
goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free
samples;
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.”
(Emphasis supplied)
Given the above, it is evident that the ITC is not eligible with respect to goods which
have been destroyed as such ITC is ineligible in light of Section 17 of the CGST
Act, 2017. Further, on facts of the case it is not a case of destruction of goods. Hence
this clause does not apply to the Querist as the goods are being sold at lower rate or
the goods are being sold as scrap. Further when paper scrap is being generated in
such scenario paper is an eligible input in this case and entire credit on paper is
admissible.
b. Entitlement under law to only take credit of eligible ITC
Legally, the Company is entitled to take the eligible ITC and in this regard Section
41 of the CGST Act, 2017 is relevant as it provides for the claim of input tax credit
and provisional acceptance thereof. The text of Section 41, CGST Act, 2017
provides as under:
"41. (1) Every registered person shall, subject to such conditions and restrictions as
may be prescribed, be entitled to take the credit of eligible input tax, as self-
assessed, in his return and such amount shall be credited on a provisional basis to
his electronic credit ledger.
(2) The credit referred to in sub-section (1) shall be utilised only for payment of self
assessed output tax as per the return referred to in the said sub-section."
(Emphasis supplied)
Thus, the Company is entitled to take the credit of eligible tax. Since it is not
ineligible tax i.e. ITC , reversal of the ITC is not required.
c. Conclusion
From the above relevant statutory provisions, the following position emerges:
i. The ITC in relation to paper used in paper waste is eligible.

ii. The Company is entitled to take the credit of eligible ITC.
Hence, as the Company has taken ITC as eligible inputs, reversal of the same is not
required.
 Issue No.2: If we sale qty which will be on lower rate due to its quality or
otherwise , is reversal of ITC on that qty is still apply or ITC on sold qty will be
available?
The ITC on sold quantity will be available and reversal of ITC is not required in case
of further supply.
In this regard, reference may be made to the definition of “input” as given under
Section 2(59) of the CGST Act, 2017:
“(59) “input” means any goods other than capital goods used or intended to be used
by a supplier in the course or furtherance of business;”
Further, “input tax” has been defined under Section 2(62) of the CGST Act, 2017 as
below:
(62) “input tax” in relation to a registered person, means the central tax, State tax,
integrated tax or Union territory tax charged on any supply of goods or services or
both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of
the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of
the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of
the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy;
Given the above, input tax means any GST charged on the goods supplied to the
Company. Further, as the ITC on the goods whose quality has been deteriorated and
are being supplied at lower price is not restricted under Section 17, the ITC is
available. Moreover, even in case of traded goods there can be a situation that goods
were purchased at higher price and were sold at lower price; in such a scenario entire
input credit is admissible.
Conclusion: HSN Code can be changed.

The entire credit is admissible.
Reversal of credit is not required even in those cases where paper is sold at below
purchase price.
Regards,
G.G.Gupta, Advocate

G.G.GUPTA & Associates Advocates & Tax Consultants (GST & Custom) Office:-302, Aggrawal Tower, Netaji Subesh Place, Pitampura, New Delhi-34 Mobile No 8459466042

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G.G.

GUPTA & Associates

Advocates & Tax Consultants (GST & Custom)

Office :- 302,Aggrawal Tower, Netaji Subesh Place, Pitampura, New Delhi-34

We want Legal Advice from you on following points:-

1. We purchase the paper material from Overseas and sale it in domestic

case input GST will be reverse or not ?

Please advice us as soon as possible.

a. Ineligible input tax credit (hereinafter referred to as “ITC”)

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and

b. Entitlement under law to only take credit of eligible ITC

i. The ITC in relation to paper used in paper waste is eligible.

Conclusion: HSN Code can be changed.

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