Stock damaged in recent floods

[CHAMANTHI BUDDAVARAPU]

Hello Sir,

I have a doubt regarding damage stock insurance claim & GST ITC. We have purchases and already input claimed at the time of purchase. But in September due floods 15 Lakh stock damaged. We are claiming insurance but insurance company said that we will consider without GST only. GST part will discuss with GST department. Please guide me what is the procedure regarding this in GST department & insurance company

[Amit Agrawal]

There are may facets to the issue raised and needs further facts.

Examples: Are you a trader, manufacturer or service provider? Whether subject gods are inputs, capital goods or intermediate goods? Whether goods are only damaged (i.e. usable for business after carrying out repairs etc.) or destroyed (i.e. unusable and to be sold as scrap)?  

One may refer to discussion we had under Issue-ID: 118820 bearing subject-line as SEC 17(5)(h) for some clarity on various issues involved. 

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

[CHAMANTHI BUDDAVARAPU]

Customer is a Trader, doing plywood business ready to sale no need to repair. Due to heavy water plywood damaged. Some sheets completely damaged but some sheets 50% damaged

[Raam Srinivasan Swaminathan Kalpathi]

The insurance claim will always be on the cost of the product or services which will include GST. My suggestion would be to reverse the ITC availed on the damaged goods as mandated u/s. 17(5)(h) and then obtain a certificate from your Chartered Accountant confirming the reversal and submit the same to the Insurance Co. The Insurance co is duty bound to process your claim for the full amount. The reason why the insurance co is reticent to process claims inclusive of GST is because of availing of double benefit by the insured, (i.e.) not reversing ITC but at the same time claiming insurance inclusive of GST. There should not be a profit element in an insurance claim. This approach should solve your query.

[KASTURI SETHI]

Sh.Kalpathi's reply is full of substance.

[Sadanand Bulbule]

Yes Sir. Even a layman can easily understand it.

[Shilpi Jain]

Pls note one aspect that reversal of credit u/s 17(5) is for goods that are destroyed. So damaged stock that can be sold at lower value, no ITC need to be reversed.

W.r.t. destroyed stock which is of no use now, ITC will have to be reversed and in that respect to that extent the insurance company should give you the insurance claim.

[Amit Agrawal]

I agree with Ms. Shilpi Jain. 

And insurance Co. are duty bound to compensate for 'basic price plus gst thereon' against goods destroyed. This aspect about obligations of Insurance Co. was explained in much more details under Issue-ID: 118820 bearing subject-line as SEC 17(5)(h). 

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

[K.lakshmipati rao]

I fully agree with the replies from above experts.  In our own case, ITC on the damaged goods was reversed by us as per the provisions u/s. 17(5)(h) of CGST Act, and got the Insurance Claim settled for full amount, including GST element.

 

[CHAMANTHI BUDDAVARAPU]

Cost of Goods damaged - 13,42,000/- + GST @18%

Insurance company claim approximately 50%. Partial damage stock will be sale with less price or scrap. Now how much I have to reverse GST ITC and what amount will be reimbursed by insurance company 

[K.lakshmipati rao]

Cost of Goods damaged - 13,42,000/- + GST @18%. Insurance company claim approximately 50%.

1. Partial damage stock will be sale with less price or scrap. Now how much I have to reverse GST ITC and

Ans.:- Damaged stock Qty. to be reversed in the Stock record to match with that of Physical Qty. available for future Sale/further supply. Consequently, the proportionate ITC on such damaged stock Qty. should be reversed as per the provisions of Section 17(5)(h) of CGST Act, 2017.

2. what amount will be reimbursed by insurance company – No comment.

AI Summary

Reversal of input tax credit required for destroyed stock; insurer should reimburse GST where ITC is reversed. Reversal of input tax credit under Section 17(5)(h) is required for goods destroyed by flood; proportionate ITC should be reversed to match the physical quantity no longer available for sale. Partially damaged but saleable goods do not require reversal to that extent. Taxpayers should obtain a Chartered Accountant certificate confirming the reversal and present it to the insurer so the insurance claim can include the GST component without resulting in a double benefit.