ITC availment

[Manoj Pradhan]

Sir , if a manufacturer purchases raw material i.e. scrap for manufacture of finished goods namely MS rod clear scrap as such due to its damage or any other reason below the purchase price . Here , the manufacturer takes ITC on the higher price and sells it lower than purchase price . Please clarify whether the above manufacturer are liable to reverse ITC which could not be used in manufacturing and cleared as such . Thanks

[Ganeshan Kalyani]

Sir, if the sale price is less than the purchase price then there is loss. Why would someone do business at loss?

[Manoj Pradhan]

Thanks sir for your reply . But in this case , is the taxpayer liable to reverse ITC ?

[KASTURI SETHI]

In GST taxable event is 'supply' and not 'manufacture'. As per Section 15 of CGST Act, the tax payer (assessee) / manufacturer/dealer is to pay GST on transaction value irrespective of the fact/aspect of profit or loss. No reversal is required. as damaged/defective inputs(goods) are used in the course or furtherance of business as per condition laid down in Section 16(1) of CGST Act.

Pl. note that transaction must be genuine and if such practice is repeated, it will pave the way for investigation by the department.

[Amit Agrawal]

I agree with Shri Kasturi Sethi Ji in toto! It is also due to my presumption that subject transaction is not between related parties.

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

[Amit Agrawal]

You may also refer to discussions under Issue Id: - 118018 bearing subject-line as GST APPLICABILTIY ON VALUE REDUCTION ( ON PREV SUPPLY)

[Manoj Pradhan]

Thanks a lot sir for your valuable inputs

[Shilpi Jain]

If it is a one off transaction and due to some reason there has been a deterioration of goods after purchase due to which the sale value is lesser than purchase price, ITC can still be taken.

However, in case of ingenuine transactions there could be disputes raised by department if these kind of situations are frequent.

[KASTURI SETHI]

I agree with Madam Shilpi Jain.

AI Summary

Input tax credit entitlement upheld where inputs used in business; one off loss need not trigger ITC reversal, scrutiny possible. Input Tax Credit need not be reversed when damaged or defective inputs purchased at a higher price are used in the course of business and later sold at a lower price, because GST is levied on the transaction value and ITC entitlement arises from bona fide use in furtherance of business; however, repeated or ingenuine reductions, or related party arrangements, may invite departmental scrutiny and possible disputes.