INVENTORY -PROVISION FOR WRITE OFF IN BOOKS OF ACCOUNTS

[Nash Industries I Pvt Ltd]

Section 17(5)(h) of the CGST Act, 2017 says that the ITC is not allowed if the stock is written off in the books of accounts.

Rule 3(5B) of Cenvat Credit Rules says that the Credit is to be reversed if the stock is written off fully or partially or provision is made in the books of accounts partially or fully.

Further, the CCR provided the recredit of credit reversed already whereas there is no such provision in the GST.

There is a difference in the two provisions.

Whether this omission is a unintentional or delibrate?

Whether the ITC is to be reversed in case if provision is made to write off in the books of accounts.

If this is an unintentional omission and the law is rectified (if) whether it will be considered as clarificatory and shall have an retrospective effect or prospective effect?

If the issue is raised during audit and is litigated ,what is the chances of success for the assessee ?

The recent judgment of the Supreme Court has held that in case of ambiguity, the case will be tilted towards revenue.

What will be the impact of this Supreme Court decision in this matter?

Regards

S.Ramaswamy

AI Summary

Input tax credit reversal: discrepancy between GST and Cenvat rules raises uncertainty on provisions to write off.
A discrepancy arises because the Cenvat rule required reversal of credit where stock is written off or a provision to write off is recorded, whereas the CGST provision disallows input tax credit only when goods are actually written off. Consequently, making a provision to write off in the books does not, by plain language of the GST provision, trigger ITC reversal. The government could clarify or amend the law, with differing retrospective or prospective effects, and taxpayers face audit and litigation risk until the issue is resolved.