ITC Reversal on Partially Damaged Stocks

[Rajendra Prasad]

Dear Sir, My stocks are destroyed in a fire accident. Some stocks are fully damaged and some stocks are partially Damaged. Received Insurance Claim also. Partially damaged Stock is sold at ₹ 10 per KG which is purchased for ₹ 100 per Kg. stocks. 1. Am I required to reverse ITC on partially damaged stocks also. 2. If I am not required to reverse the ITC , ITC per kg is ₹ 18 where as GST on Outward supply is ₹ 1.80 per Kg . Whether the department will accept this ? Please clarify.

[KASTURI SETHI]

As per Section 16 of CGST Act, it is basic requirement that ITC must be used in the course of business or furtherance of business i.e. Taxable outward supply. You do not fulfill this condition. Destroyed goods containing the taxable inputs clearly fall in the exclusion clause. ITC has to be reversed. The situation given by you will not be accepted by the department.

SECTION 17. Apportionment of credit and blocked credits

Availment of ITC is hit by Section 17(5)(h) of CGST Act which is as follows:.

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

[Atul Rathod]

Need to reverse the credit.

[Ganeshan Kalyani]

In case of fully damaged goods corresponding input tax credit need to be reversed. In the exclusion section of Sec 17(5) the same is clearly give. In my view , in case of partially damaged goods which is sold at a lower rate will quality as an activity in course of the business. Since gst is also paid on the outward supply of partially damaged goods corresponding input tax credit reversal is not required. Thanks.

AI Summary

Input tax credit reversal required for destroyed goods, while sale of partially damaged stock may affect reversal obligations. ITC is available only when inputs are used in the course or furtherance of business for taxable outward supplies; goods lost, stolen, destroyed or written off fall within the exclusion requiring reversal of credit under Section 17(5)(h). Practitioners disagree on partially damaged stock: some require reversal, while others argue that sale of such stock with GST charged constitutes an activity in the course of business so reversal is not necessary.