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GST ITC Eligibility on Damaged Goods or Sold at a Low Rate

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By Arpit Kulshrestha

 

Eligibility for Claiming ITC on Goods U/S Section 17(5)

Eligibility of ITC for the case of partial damage goods or goods sold at the lower costs

Is there any need for a reversal of ITC for the case in which the goods were destroyed partially or sold at lower costs? Learning the GST law and the recent judgment.

According to Section 17(5) of the CGST Act, no input credit would be permitted for the goods "destroyed or Lost"

The Extraction of Section 17(5)(h) of the CGST Act 2017 is Quoted Below

Apart from that anything comprised in sub-section (1) of section 16 and subsection (1) of section 18, GST ITC will not be available towards the below-mentioned things:
  1. Goods lost, stolen, destroyed, written off, or disposed of through the way of gift or free samples; and.
  2. The Dictionary sense of destroyed is specified under.
  3. “to damage something so badly that it cannot be used:”
(Ref- https://dictionary.cambridge.org/dictionary/english/destroy)

Some of the Examples of the Words Destroyed Would be Specified Under

  • Most of the traditional part of the city was destroyed in the war.
  • In the fire, essential historical documents would have been destroyed.
  • In 1906, San Francisco was destroyed by an earthquake.
  • A bomb fell on the church and destroyed it.
According to the understanding, words used by the lawmaker in the continuation would be the goods lost, destroyed, and written off.

In the cases mentioned in the GST, law goods would have perished or could not be used.

It is No-where Specified in the Law That Goods Were Partially Lost, Destroyed, Etc

Thus the need for the input reversal would be applied in the case of full loss of goods, not in the case of partial loss.

Marketing can be done through the partially lost goods and would consist of a fair market value and only sold to some of the reduced cost. Thus there would be no reversal of Input tax credit needed.

When an individual secured with the argument that the cost reduction would take place as the proportionate destruction in the brand value of goods and portion of goods would be destroyed and input must get reversed.

To Manage the Same Situation I Need to Give An Example to Draw More Clarity

When we sell the branded shirts/trousers/other items at a lesser cost as of various causes these minor defects, product age, and others. When the same could not be mentioned that the product would lose its brand value. Due to the specified above reasons, these shirts/trousers/others would have been sold at a lower price only.

Identically the above e-commerce industry would be working on the identical thing that would be sold on their products at a lower cost for various reasons.

There shall be no condition in the GST law to reverse the Input credit for these cases, hence according to my experience there shall be no requirement to reverse any input credit when we used to supply these goods and GST would be furnished on that.

There is one of the cases for “Toplink Motorcar Private Limited (GST AAR West Bengal)” for the same case the same would be held through AAR authority that

The GST provision does not mention that the ITC will not be available for any outward supplies that would be incurred at a cost lesser than its procurement value.

Moreover, towards the same, any product cost would be acknowledged in these cases and normal wastage. Hence the same wastage cost would be marked on the cost imposed for the final product and GST would be furnished on that to the government along with the normal loss.

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