The GST Appellate Tribunal, Chandigarh remanded a demand on a cooperative society trading in exempt cattle feed, observing that reversal is needed only for common credit used for both taxable and exempt supplies.

Where a trader takes no input tax credit on goods it sells exempt, Section 17(2) of the CGST Act calls for reversal only of credit, such as on common input services, that is used for both taxable and exempt supplies, and not a mechanical ratio of total ITC [The Dhanaula Co-op. Agri. Service Society Ltd. v. State Tax Officer-cum-Proper Officer & Ors., 2026-juristway.com-3203-GSTAT(Chandigarh)-GST].

The appeal was heard by Jatinder Pal Singh, Member (Judicial), and Pradeep Kumar Goel, Member (Technical).

The appellant, a cooperative agricultural service society in Barnala, Punjab, buys goods for its members and supplies them at a nominal markup. For FY 2019-20, an intimation in DRC‑01A dated 2 May 2024 required it to reverse ITC on exempt supplies. The society says it replied on 22 May 2024 that the exempt turnover was trading in cattle feed (HSN 2309), bought at a 0% rate with no ITC availed.

An SCN followed on 28 May 2024. The order dated 30 Aug 2024 confirmed tax of ₹1,20,852 with interest of ₹1,06,978 and a penalty of ₹20,000. A rectification application was rejected on 5 Jun 2025 because no reply to the DRC‑01 had been filed, and the first appeal was dismissed on 10 Dec 2025.

The demand had two parts: ₹1,19,506 for non-reversal of ITC under Section 17(2) read with Rules 42 and 43, and ₹1,346 from a difference between GSTR‑1 and GSTR‑9.

The society argued that its DRC‑01A reply was ignored, in breach of Sections 73(9) and 75(4) and Rule 142. It relied on Shoriful Islam v. State of Assam and Jai Jawan Kastha Bhandar v. State of Jharkhand ([2022] 140 taxmann.com 537). It also said Rule 42 presupposes input tax actually paid, and that GSTR‑9 is the final declaration that corrects clerical slips.

The Tribunal held that if no ITC was taken on purchases of wholly exempt cattle feed, reversal would arise only for credit used partly for taxable and partly for exempt supplies, and only to that extent. The original authority must verify the ITC records and work out any amount due.

On the second part, the Tribunal observed that GSTR‑9 under Section 44 is an annual return in which a taxpayer may correct figures declared in GSTR‑1. The society may explain the clerical difference before the original authority.

Both sides agreed to a remand. The appellate order was quashed and the matter sent back for fresh adjudication on tax, interest and penalty, after dealing with the society’s grounds and granting a personal hearing.

2026-juristway.com-3203-GSTAT(Chandigarh)-GST