Material Return back & insurance co.

[POLYPLEX CORPORATIONLTD]

We had taken ITC on R/M @ 18% and dispatch finished goods to customer. In transit, the goods was damaged and return to plant and we issue credit note and reverse our Output Tax Liability. After survey by insurance company it was decided to sale these goods as it is on scrap @ 5%. Now we pay GST @ 5% on scrap value. and the Rest amount received us without GST from insurance company after deduction as per insurance policy.

Question :-1 . Whether we have reverse credit taken on Raw Material ? If yes How much i.e. on Scrap Qty. or balance Qty. or proportionate Amount received from Insurance Co. ?

2. Whether money received from Insurance Company liable to GST?

[Spudarjunan S]

Brief reply to your queries -

1. Reversal not required as the goods were available and sold it as scrap. The restriction u/s 17(5)(h) for "goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample" may not apply as your goods does not fit into any of such phrase.

2.In the case of reimbursement from insurance company the supplier is insurance company and not you. You have not supplied the goods to insurance company. The insurance company is providing the service by agreeing to do an act for which they are receiving consideration (Periodical Premium) and discharging GST.

[KASTURI SETHI]

1. Reversal is not required.

2. The amount received from the Insurance Company is compensation and is not covered in the definition of 'consideration' provided under Section 2(31) of CGST Act. Moreover, the element of tax/duty is not included in the amount of insurance claim received from the Insurance Company.

I support the views of Sh.Spudarjunan S.

[Ganeshan Kalyani]

I agree with the views of the experts.

Input tax credit reversal is not required on the goods returned. GST is applicable on goods sold as scrap.

Further, there is no GST on the insurance claim received.

AI Summary

Input tax credit reversal not required where damaged goods are sold as scrap; insurance compensation not subject to GST.
Input tax credit reversal is not required when damaged raw materials returned to plant are sold as scrap; the disposal limitation does not apply where goods remain available and are sold. GST is payable on the scrap sale at the applicable rate. Insurance compensation received for damage is not consideration for a supply by the claimant and is not subject to GST; the insurance company's indemnity service is the relevant taxable act for the insurer.