ITC reversals destroyed goods, Goods and Services Tax - GST

[Madhavan iyengar]

Sec 17(5)(h) ITC not available in respect of

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

Query in certain types of industries due to shelf life expiry the Finished goods are required to be destroyed and once destroyed as per above proviso ITC is required to be reversed in respect of ITC availed for manufacture of such Finished goods

Experts kindly suggest methodology for reversal and here ITC would mean Inputs/ Input services and Capital goods moreover there is a provision contained in sec 35(6) which is linked with sec 17(5)(h) where department if not satisfied with the records maintained can arrive at taxable value and charge tax and it will be treated as a supply sec 35(6) Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.

Posts / Replies

[Shilpi Jain]

Since there is no mechanism provided in the law a reasonable means can be adopted to estimate the goods and services used for the goods and the ITC involved. The data can be taken from the BoM (bill of material) and the costing records.

However, another view which can be taken is that since there is no mechanism in the law to arrive at the amount to be reversed, reversal is not required in case of manufactured goods. Though this view will have to be judicially tested.

[Alkesh Jani]

Sir,

On safer side you can adopt the formula of 110% of Cost of Production CAS-4 (erstwhile captive consumption) for arriving at the valuation of the destroyed goods.

Thanks

[KASTURI SETHI]

I agree with sh.Alkesh Jani Ji. It should be certified by an CMA. The certificate issued by an CMA is accepted by the Department and various courts.

[Ganeshan Kalyani]

Finished goods stored in factory has a batch number which will take us to its cost of production. If the itc amount involved in the FG destroyed is less then the internal cost working attached to the batch number can be furnished to auditor is asked. And if the amount is substantial then the certificate from cost accountant as opined by expert colleagues can be obtained. Thanks.