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

Debate on ITC Reversal for Damaged Goods: Sections 16 & 17(5)(h) of CGST Act vs. Business Activity Argument A business owner inquires about the need to reverse Input Tax Credit (ITC) on partially damaged stocks sold at a reduced price after a fire accident. The first response indicates that ITC must be reversed for destroyed goods as per Section 16 and Section 17(5)(h) of the CGST Act, which excludes goods that are lost or destroyed. Another reply concurs, stating that credit must be reversed. However, a third response suggests that partially damaged goods sold at a lower price still qualify as business activity, and thus, ITC reversal may not be necessary since GST is paid on the outward supply.