A registered dealer has made plantation of trees on open land and for safety from animals has installed fencing with barbed wire and cement concrete fencing poles. Please guide as to whether ITC would be permissible on Fencing Pole, Barbed Wire, cement etc. used in such fencing.

Reply-Under section 17(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.

As per Advance ruling pronounced by AAR,Karnataka  in the case of The Karnataka State Co-Operative Marketing Federation Limited  it was held that for providing exempted supplies GST paid on inward supplies  shall not be claimed as Input tax credit as per sub-section 2 of Section 17 of the CGST Act 2017.

Under Rule 42(1) the 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, being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the  manner prescribed. 

So,ITC used for Exempt supplies has to be reversed as per Rule 42 of CGST Rules, 2017.