Input tax credit denied for expired cakes & pastries displayed for business

The Advance Ruling Authority held that input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes is not admissible under section 17(5)(h) of the CGST Act, requiring reversal. This decision was based on the perishable nature of the products, legal prohibitions on selling expired goods, and alignment with government circular provisions on reversing input tax credit for destroyed goods.

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Issues:
1. Requirement for reversal of input tax credit on goods used as raw material in manufacturing of expired cakes & pastries kept in display for business purposes.

Analysis:
A. Brief Facts:
The applicant, engaged in manufacturing and distributing cakes & pastries, sought an Advance Ruling on whether there is a need to reverse input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes.

B. Question on Advance Ruling:
The applicant specifically asked whether there is a requirement to reverse input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes.

C. Personal Hearing:
During the virtual hearing, the applicant clarified that the expired cakes & pastries are thrown away, emphasizing their perishable nature and ineligibility for sale due to expiration.

D. Findings:
1. The CGST Act and GGST Act have similar provisions, with differences only in specific areas.
2. The Authority considered all submissions and focused on whether input tax credit on raw materials used in expired cakes & pastries should be reversed.
3. The applicant confirmed the perishable nature of the cakes & pastries displayed and the disposal method of throwing away expired products.
4. The Authority highlighted the legal prohibition on selling expired food items and the criminalization of selling harmful perishable products.
5. Section 17(5)(h) of the CGST Act, concerning 'Blocked Credit,' was referenced, emphasizing that destroyed goods fall under this provision, blocking input tax credit admissibility.
6. Referring to a government circular, the Authority concluded that the scenario aligns with the circular's provisions on reversing input tax credit for destroyed goods.
7. The ruling stated that input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes is not admissible and should be reversed.

In conclusion, the Advance Ruling Authority determined that the input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes is not admissible under section 17(5)(h) of the CGST Act, requiring reversal.

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