GST UPDATE ON REVERSAL OF ITC IN CASE OF GOODS LOST BY FIRE
By: – Pradeep Jain
Goods and Services Tax – GST
Dated:- 9-12-2017
In GST regime, the scope of definition of inputs, capital goods and input services is very wide and covers almost all the imaginable goods and services that are directly or indirectly used in course or furtherance of business. However, section 17(5) prescribes a list of goods or services on which ITC is not admissible. The opening para of section 17(5) of CGST Act, 2017 reads as follows:-
"(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
……
……
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; "
The bare analysis of above section makes it clear that this section has overriding effect and it states that the ITC shall not be available in respect of g
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ore, the ITC shall not be allowed on the same.
By analyzing both the views, the authors of this update find that the definition of inputs and capital goods use the phrase "used or intended to be used in course or furtherance of business". Since this condition is to be checked at the time of admissibility of ITC and at that time the goods lost, stolen or destroyed were intended to be used in course or furtherance of business, the ITC was legally availed. It is worthwhile to mention here that once ITC is legitimately availed, it cannot be demanded back without a specific provision in this regard. There is no provision for demanding the ITC on inputs, capital goods and input services that have already been used for manufacture of finished goods that are lost or stolen or damaged. There is only one provision under clause (h) of section 17(5) of CGST Act, 2017 which talks of reversal on inputs or capital goods or input services itself. Further, there is no such provision of rever
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n the ITC cannot be demanded on the input content in the finished goods lost or destroyed. The content of this GST update is for educational purpose only and not intended for solicitation.
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Reply By JAIPRAKASH RUIA as =
Good !
If a manufacturer buy gift and give to customer. whether the ITC of GST paid on gift purchased is available to manufacturer please?
Dated: 11-12-2017
Reply By Manoj Sharma as =
Though the words used at the beginning of subsection 5 are "no ITC shall be available" I guess the real intention of Section 17(5)(h) is to define reversal. You do not know which goods you are going to distribute as gift or sample or which goods are gonna destroyed. The indirect meaning of this wording is that you take ITC at the arrival of goods but you have to reverse it when you di
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