Implication of inventory graded inventory write off vis-a-vis Section 17(5)(h)

[Raam Srinivasan Swaminathan Kalpathi]

A retail store has a policy of write down of the value of its old inventory at the end of each reporting period. At the end of the first year - inventory carried over is reduced by 30%, second year 50% and by the end of the third year 100% of the inventory is written off. My query is - when will the provisions of Sec.17(5)(h) kick in? Do we have to indulge in proportionate reversal of availed ITC or should the ITC availed be reversed only when the inventory is fully written down to zero?

Secondly, suppose the retail store is able to sell some of the inventory written off, what would be the treatment of the ITC already expunged?

Thanks

AI Summary

Inventory write-down versus write-off under GST: ITC reversal arises only when goods actually exit the taxable supply chain.
Section 17(5)(h) blocks input tax credit on goods that are lost, stolen, destroyed, written off, or given away as gifts or free samples, but a mere inventory write-down does not itself trigger reversal. A reduction in carrying value while goods continue to exist and remain saleable is only an accounting adjustment. ITC reversal arises when goods are actually written off, destroyed, lost, expired, or otherwise cease to be available for taxable supply. If written-off goods are later sold, GST is payable on the outward supply, though the law does not expressly provide for restoration of the reversed credit.