GST on samples drawn for testing

[Kaustubh Karandikar]

XYZ(Manufacturer) withdrawing samples of raw material, semi – finished goods and finished goods for Q.C. testing within factory. The samples get consumed / destroyed during testing. Is XYZ required to reverse proportionate input tax credit / pay GST on such samples?

[Mahadev R]

Section 17(5) restricts credit on goods disposed by way of gift or samples. In this present case, it is disposed by way of samples.

ITC on goods which gets consumed / destroyed in testing should not be restricted as it is part of business process. If before, putting to use goods are destroyed, then credit should be restricted. There are few case laws under Central excise law which could be referred which could be useful for GST as well

[KASTURI SETHI]

I agree with Sh.Mahadev R. an expert. On the issue, a judgement of Supreme Court is appended.

Proportionate reversal is required.

Cables - Telephone cables - Piece of cable removed from drum and destroyed in the course of mandatory quality control test - Whether chargeable to Excise duty?

The Supreme Court Bench comprising Hon’ble Mr. Justice B.N. Kirpal and Hon’ble Mr. Justice Syed Shah Mohammed Quadri on 7-4-2000 after condoning the delay dismissed the Civil Appeal No. D2703 of 2000 filed by Commissioner of Central Excise, Kerala against the CEGAT Order Nos. 2485-2489/99, dated 21-9-1999 and reported in 2000 (126) E.L.T. 643 (Tribunal) =  1999 (9) TMI 509 - CEGAT, MADRAS (Traco Cable Company Ltd. v. Commissioner). While dismissing the appeal the Supreme Court passed the following order :

“Delay condoned.

The Civil Appeal is dismissed.”

The Appellate Tribunal in its order in question relying on its decision in the case of Collector v. General Cement Products Ltd. [1989 (39) E.L.T. 689 (Tribunal)] = 1988 (12) TMI 182 - CEGAT, NEW DELHI, had held that piece of cables removed from the drum used for mandatory quality control test and which get destroyed in the course of quality control test, cannot be considered as excisable goods.

[Commissioner v. Traco Cable Company Ltd. - 2001 (127) E.L.T. A49 (S.C)] = 2000 (4) TMI 822 - SUPREME COURT

[DR.MARIAPPAN GOVINDARAJAN]

In my view, this case may be referred to GST Council so as to give a decision which is useful to all.

AI Summary

Input tax credit reversal on samples consumed in quality testing may be required or contested under GST.
Whether manufacturers must reverse proportionate input tax credit or pay GST when samples withdrawn for in house quality control testing are consumed or destroyed. One position treats such withdrawals under a restriction on credit for goods disposed as gifts or samples, requiring reversal. Another treats destruction in bona fide testing as part of the business process, arguing ITC need not be denied, though destruction before putting to use may require restriction. A Supreme Court excise decision finding test removed cable pieces not excisable is relied on, and a referral to the GST policy body is suggested.