DAMAGED GOODS SOLD,IS ITC REQUIRED TO REVERSE??

[PAWAN BANSAL]

Dear Professional ,

We have purchase some raw materials and after receiving we came to know that it got damaged and sold all the damaged goods to insurance surveyor at a lower price.with GST.

are we supposed to reverse ITC?

is the reply will be same if we sold as a scrap??

Thanks & Regards

P Bansal

[Rajagopalan Ranganathan]

Sir,

If the damaged goods are sold as such or as scrap on payment of gst no reversal of ITC is required.

[KASTURI SETHI]

Sh.Pawan Bansal Ji,

You are to go step by step (stage-wise). Dictionary/legal meaning of the word, 'damaged' is 'lost'. 'Damaged' is synonym of the word, 'lost'. Thus availment of ITC is hit by Section 17(5)(h) of CGST Act,2017.

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

You cannot take credit of damaged/lost portion of raw material. You will take credit only of the tax paid on the value of the goods (raw material) received intact. As per law you have not crossed first stage (of taking credit).

Now comes second stage i.e. to sell/supply the raw material as scrap. As explained above, you are not eligible to take credit. If you take credit in this scenario, you are to reverse the credit. Credit reversed means credit NOT taken---held by the Court.

In other words, you can sell the damaged raw material as scrap only after reversal of ITC in the light of above discussion.

As per legal dictionary, the word, 'Damage' signifies the thing taken away--the lost thing which a party is entitled to have restored to him, so that may be whole again.

[Shilpi Jain]

The words used in 17 (5) are destroyed and lost. In the present case the goods are not lost. However if they are destroyed then would not be an eligible credit.

So if u have sold it means they are not destroyed as destroyed would mean not saleable at all. So I think credit would be eligible.

[KASTURI SETHI]

Dear querist,

There is a comma after the words, 'goods lost'. A comma represents the shortest pause and it separates the words of address from the rest of the sentence. Both the words, 'lost' and 'destroyed' are not joined by a conjunction called 'and'. So you are advised to read Section 17(5)(h) between the lines. A comma is the most important punctuation mark.

[MUKUND THAKKAR]

please check condition of reversal of ITC, no where it is mention that, ITC need to reversal in case sales of goods (damaged), it is happen according to you it is damaged or non useable as per your quality norms.but same has useable for buyer. it may happen seller sale goods lower price if not found fit for use.

[YAGAY and SUN]

In our view, you need to reverse the ITC so availed on these damaged goods, as you recovered the salvage value of these damaged goods along with ITC on GST paid from Insurance company.

Even you sell these damaged goods as scrap then also you need to reverse the ITC.

[ABHISHEK TRIPATHI]

Dear Pawan Ji,

Agree with Yagay and Sun, see, the basic premise of getting input tax credit is when the inputs are used or intended to be used in the course or furtherance of his business. Your goods lost/destroyed, whatever, they were never used in the business. So, you are not even eligible to take such credit. If you have taken it, you should reverse it.

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir. The insurance company pays you the money only when goods is damaged. Damaged goods cannot be used in business and therefore ITC need to be reversed if claimed.

AI Summary

Input tax credit reversal for damaged goods not used in business; sale as scrap may still require reversal.
Whether input tax credit on damaged raw materials must be reversed depends on whether the inputs are treated as lost/destroyed and unavailable for business use under Section 17(5)(h), in which case credit on the damaged portion must be disallowed or reversed, or whether the damaged goods were sold as saleable goods (including as scrap) with GST charged, in which case credit may remain available.