ITC reversal

[shwetal oswal]

The recipient has debited the supplier by Rs. 30000/- due to damaged goods received.

The recipient has neither reversed the ITC nor the supplier has reduced his liability.

Can department still insist for reversal of ITC?

[Shilpi Jain]

ITC blocking u/s 17(5) is attracted in case of goods destroyed... If your case is damaged goods and there is a salvage value, blocking may not be applicable

[Amit Agrawal]

From the query, it is presumably understood that concerned goods were damaged but capable of being repaired economically and re-used.

And if so, attention is invited to Section 34 (1) of the CGST Act, 2017 which reads as under:

"[Where one or more tax invoices have] been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient 2[one or more credit notes for supplies made in a financial year] containing such particulars as may be prescribed"

In my view, issuance of credit-note under above-said 34 (1) is not mandatory on the supplier. And If supplier had not issued any such credit-note u/s 34 (and difference of Rs. 30,000/- was settled with accounting / commercial credit-note from supplier & corresponding accounting / commercial debit-note from recipient ...... please note that both these documents are different from similarly-worded documents prescribed in Section 34), then, Dept. can NOT insist for reversal of any ITC at the end of the buyer in my humble view.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Best fitted in the definition of the term, 'salvage' as opined by Madam Shilpi Jain. Hence no reversal required. There is no risk for SCN. In case SCN is issued, that will not sustain.

[YAGAY andSUN]

If the supplier claims Insurance along with GST paid against damaged goods, then ITC needs to be reversed by the recipient of damaged goods as he will not pay any amount to the supplier.

[Shilpi Jain]

A view can be taken that the goods are used for business and in the course of business they were damaged and thereby no credit reversal.

However this view could be disputed.

AI Summary

Input tax credit reversal: damaged but repairable goods may not require ITC reversal absent a statutory credit note or insurance claim. Input Tax Credit reversal is disputed where damaged goods led to a commercial debit/credit adjustment without a statutory credit note and without supplier tax reduction. If goods are destroyed, blocking of ITC may apply; if salvageable or repairable, blocking may not apply. Issuance of a formal credit note under the statutory provision is not always mandatory and commercial adjustments differ from the statutory credit note. If the supplier claims insurance and the recipient pays nothing, ITC reversal may be required; where goods are salvageable and commercial settlements occurred, many practitioners view reversal as unnecessary though subject to dispute.