GST on amount written off

[Kaustubh Karandikar]

XYZ sold material to export customer (non-related party) in 2016 and also the export formalities like filing proof of export has been completed in 2016 only. XYZ not received 15% amount from customers against these materials. The customer is now bankrupt and will not pay this 15% amount. XYZ are in the process of making provisions for bad debts for amount not receivable. After taking approval from bank, they will write off this amount in books of accounts.

1) Whether GST will be applicable on provisions for bad debts for non-related party?

2) Whether GST will be applicable on write off of amounts not receivable from customers.

3) Is proportionate ITC is required to be reversed to the extent of amount not received?

[KASTURI SETHI]

Query-wise views are as under:-

It is an undisputed fact that the whole quantity of goods stands sold and exported and you have documentary proof to this effect. Although 15% amount has not been received, yet the whole consignment is to be treated as exported. De facto, exported goods are also to be considered as duty-paid goods.

1. GST is not applicable on the amount of bad debt. Not covered Section 15 regarding transaction value.

2. GST is not applicable on this ground also. Not covered under Serial No 5 (e) of Schedule-II.

3. Proportionate ITC is not required to be reversed as it is not write-off of inventory value. Such write-off is not covered by Section 17(5) (h) of CGST Act.

Exportation saves you in respect of all three aspects.

[MUKUND THAKKAR]

Export benefit is taken in respect of said transaction need to rerun to dept.in of non recoverable amount from customer.

[KASTURI SETHI]

In my view, except rebate/refund all other benefits are available. Duty cannot be demanded.

[MUKUND THAKKAR]

MEIS & DBK also recoverable

AI Summary

GST on bad debts: exported goods treated as exports; GST not payable and ITC need not be reversed.
The documented export is treated as an export for GST purposes; consequently GST does not apply to the bad-debt provision or the write-off of the unpaid amount, and proportionate reversal of input tax credit is not required because the write-off is not treated as a taxable supply or an inventory write-down attracting ITC reversal. Export benefits other than rebate/refund remain available, although some export incentives may be recoverable.