ITC reversals destroyed goods

[Madhavan iyengar]

Sec 17(5)(h) ITC not available in respect of

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

Query in certain types of industries due to shelf life expiry the Finished goods are required to be destroyed and once destroyed as per above proviso ITC is required to be reversed in respect of ITC availed for manufacture of such Finished goods

Experts kindly suggest methodology for reversal and here ITC would mean Inputs/ Input services and Capital goods moreover there is a provision contained in sec 35(6) which is linked with sec 17(5)(h) where department if not satisfied with the records maintained can arrive at taxable value and charge tax and it will be treated as a supply sec 35(6) Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.

AI Summary

Debate on ITC Reversal for Expired Goods Under GST: Section 17(5)(h) Requires Reversal Without Clear Calculation Method. A discussion on a forum addressed the issue of Input Tax Credit (ITC) reversals for goods destroyed due to shelf life expiry under GST regulations. Section 17(5)(h) of the GST law mandates ITC reversal for such goods. Participants debated the methodology for ITC reversal, suggesting using bill of materials and costing records or adopting a formula based on 110% of the cost of production. Some advised obtaining a certificate from a Cost Management Accountant (CMA) for validation, while others noted the absence of a legal mechanism for determining reversal amounts, suggesting judicial testing might be necessary.