Waste and Scrap

[Kaustubh Karandikar]

XYZ is in the manufacture of Sweets and Namkeen. The waste generated while manufacturing these products are non – marketable and therefore is disposed of by dumping and destroying outside the factory without payment of GST. Are they required to proportionately reverse the ITC on common goods and services since no GST is paid on such waste?

[Alkesh Jani]

Sir,

At the very outset, I wish to comment that in GST "marketability" is not the measure for payment of GST. However, when manufacturing process is undertaken, waste may be generated, which is disposed of falls within the definition of "outward supply" given at Section 2(83) of CGST Act, 2017 and disposal of is also included in "Supply" under Section 7(1) of CGST Act, 2017. The disposal of goods (waste) is also covered under Section 17 (5) (h) of CGST Act, 2017.

In view of above, the said waste when disposed of without payment of GST, ITC proportionate to waste disposed of is required to be reversed.

Our experts may like to offer their comments in the matter.

Thanks,

With Regards

[YAGAY and SUN]

In our view there is no supply involved in this matter since waste goods are being dumped as per the provisions of Environmental laws. Bill of Supply along with e-way bill shall be issued.

[Brijesh Verma]

It is a manufacturing process loss. It's totally different from the word "lost" used u/s 17(5) which triggers reversal of ITC.

No need to make any reversal.

[Hasmukh Patel]

Brijesh Verma is absolutely right. Waste generate during manufacturing process is not consider as out word supply of destroy of goods. No need to reversal of ITC. If final finished products are destroy are liable to revercel of ITC.

[Ganeshan Kalyani]

If this is a manufacturing scrap then TCS - Tax Collection at Source is applicable under Income Tax Act. on this transaction.

[YAGAY and SUN]

In GST Regime, there is no concept of manufacturing, However, documents related to manufacturing need to be preserved as prescribed in GST Law.

AI Summary

Input tax credit reversal debate: disposal of manufacturing waste may trigger proportionate ITC reversal under GST provisions.
Whether waste generated during manufacturing and disposed without payment of tax requires proportionate reversal of Input Tax Credit: one position treats disposal as an outward supply under Sections 2(83), 7(1) and within Section 17(5)(h), requiring ITC reversal; an alternative position regards manufacturing waste as process loss not amounting to outward supply and therefore not attracting reversal. Procedural suggestions include issuing a bill of supply and preserving manufacturing records; an auxiliary income tax TCS point was also raised for scrap transactions.