GST ON INSURANCE CLAIM AGAINST GOODS

[ajay chharia]

1.BUYER HAS PURCHASED THE GOODS ON EX-FACTORY TERMS AND TAKEN INSURANCE COVER FOR TRANSIT.

A. THE GOODS (PAPER) GOT WET DUE TO RAIN , THE PRICE OF PAPER REDUCE SAY FROM ₹ 50/- PER KG TO ₹ 30/- PER KG.BUYER GET THE CLAIM.HOW TO TREAT THIS CLAIM UNDER GST,WHETHER TAXABLE? THE BUYER HAS SOLD THE GOODS AT LOWER PRICE .

2.THE ENTIRE LOT GOT COMPLETELY DAMAGED AND NO RECOVERY BY BUYER,ALSO GOT INSURANCE CLAIM.HOW TO TREAT THIS CLAIM UNDER GST,WHETHER TAXABLE? IN THIS CASE BUYER HAS NOT TAKEN ITC AS PER SEC 17(5)(h)

[Ganeshan Kalyani]

A. In my view, you cannot claim input tax credit on the goods of ₹ 20 per kg (50-30). Assuming that you got the claim amount for ₹ 20/per kg part of the goods. GST is applicable on the goods sold at a lower price,

B.In this case, no GST impact.

[KASTURI SETHI]

In ex-factory supply, the ownership of the goods stands transferred from manufacturer to the buyer at the factory gate itself. The supplier/manufacturer has to discharge tax in full.

Whether GST component is included in the amount of insurance claim received by the buyer ?

[ajay chharia]

Insurance claim passed in favour of buyer is without GST i.e., in both the cases the insurance co is passing the claim only for value of goods before gst

[Ganeshan Kalyani]

Sri Kasturi Sir, I have replied in the view point of the buyer. If the buyer claims input tax credit then for the purpose of lodging insurance claim input tax credit cannot be included.

[KASTURI SETHI]

Dear Ganeshan Kalyani Ji, I agree with you, Sir. I have not rebutted your view at all.

[Rajagopalan Ranganathan]

sir,

If the seller reduced the price the price for tolerating the supply of damaged goods then gst will be applicable to the amount received in compensation to supply of damaged goods. In your case the goods were good quality at the time of handing over the same to the transporter. The goods get damaged due to rain only in transit. The goods are insured for any damage during transit. Moreover the insurance claim had been lodged for the value of goods excluding gst paid. In this case the buyer is eligible to claim ITC if gst paid on the goods provided he pays the gst to the buyer in full.

[PAWAN KUMAR]

Sir as per my view,

A-Goods cost already reduced, it will be sold at lower rate on GST payment

B-claim amount received of ₹ 20, no GST leviable.

[Ganeshan Kalyani]

Ok. Sri Kasturi Sir. Thanks.

[Bhavika Chothani]

A. GST would be applicable on sale price of ₹ 30
B. Since there was no sale related to this purchase, no GST is applicable on it

AI Summary

GST on insurance claims: compensation for damaged goods is not taxable, GST applies on reduced sale consideration. When goods bought ex factory are damaged in transit, GST is levied on the taxable supply of those goods at the actual sale consideration (including a reduced sale price). Insurance payments received as compensation for loss in value, particularly when paid exclusive of GST, are not themselves taxable supplies. Input tax credit cannot be recovered through the insurance claim amount and GST consequences follow the buyer's ITC position and the character of any price reduction made by the seller.