Regarding ITC on Sales Return of Goods of which Buyer has not taken ITC due to restriction u/s 17(5)

[Shyam Agarwal]

Sir, Mr.A is a Cement dealer. He sold 5000 bags of Cements to Mr.B,Cloth Merchant for Office construction. Mr.B has not taken the ITC of Cement bags due to restriction u/s 17(5). Now, out of 5000 bags, Mr.B has returned 1000 bags to Mr.A and issued Debit Note without charging GST separately but GST component clubbed in the cost of 1000 Bags. On asking to him, Mr.B said that as he has not taken the ITC hence he has not charged in Debit Note. Can Mr.A can take ITC back on these 1000 bags? Is there need to take any precautions in this kind of transactions?

AI Summary

Cement Dealer Can Reclaim ITC on Returned Bags if GST Included in Price, Despite Debit Note Use: Section 34(4) CGST Act A cement dealer sold 5,000 bags to a cloth merchant for office construction. The merchant returned 1,000 bags without claiming Input Tax Credit (ITC) due to restrictions under Section 17(5) and issued a debit note without separate GST charges. The dealer inquired if ITC could be reclaimed on these returned bags. The response indicated that while the buyer issued a debit note instead of a credit note, ITC can still be availed if records show the returned goods' price included GST, as per Section 34(4) of the CGST Act, 2017.