17 (5) GOODS DAMAGE & SCRAP SALE

[santosh yadav]

Dear Professional,

We had bought the goods 2 years back due to non-sales on time got spoiled which we sold in scrap should we refund the input tax of the value which is difference of scrap sale and purchase price

[KASTURI SETHI]

In my view, reversal is not required on the following grounds :-

(i) Not hit by Section 17(5)(h) of CGST Act. The word. 'spoiled' does not find place in this sub-clause.

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

(ii) Sale of scrap i.e. spoiled goods are covered in the phrase, "used in the course or furtherance of his business" as per Section 16 (1) of CGST Act

[Shilpi Jain]

Agree with kasturi sir. Once goods sold with payment of tax, be it whatever value , ITC would be eligible.

[Ganeshan Kalyani]

No need to reverse the input tax credit as clarified by experts.

[RAMASWAMY Advocate]

yes, in my view the expert opinions appear to be correct.

[KASTURI SETHI]

Sh.Ramaswamy Ji,

Thanks for your concurrence with the views. I could not digest the word, 'appears'. In my views, the word, 'appears' contains the element of uncertainty. In other words, the absence of confirmation. Do you agree ? Your views please, sir.

AI Summary

No ITC Reversal Needed for Spoiled Goods Sold as Scrap; Supported by Sections 17(5)(h) and 16(1) of CGST Act. A discussion on a forum addressed whether input tax credit (ITC) must be refunded when goods purchased two years ago became spoiled and were sold as scrap. The consensus among participants, including several professionals, was that there is no need to reverse the ITC. The reasoning is that the situation is not covered under Section 17(5)(h) of the CGST Act, which pertains to goods lost, stolen, or disposed of as gifts. Additionally, selling spoiled goods as scrap is considered a business activity under Section 16(1) of the CGST Act, allowing for ITC eligibility.