A recent advance ruling has been made regarding the interpretation of ‘goods destroyed’ in
Section 17(5)(h) of the CGST Act, 2017. The applicant held that when inputs are fully utilized in
the manufacturing of finished goods, the same cease to exist, and thus, the credit availed on
said inputs is not required to be reversed in the event of destruction of finished goods in fire as
per Section 17(5)(h).
The Authority for Advance Ruling in Telangana held that Section 17(5)(h) clearly states that ITC
shall not be availed in respect of “goods lost, stolen, destroyed, written off or disposed of by
way of gift or free samples.”. Also, ITC is available to a taxable person only when such a taxable
person makes taxable supplies. When the taxable supplies are not made ITC is not available
under section 17(2) & 17(5)(h). If ITC is already been utilized such credit needs to be reversed.
Consequently, the ITC to the extent of manufactured goods destroyed or input destroyed is
not available to the applicant and the same needs to be paid back either through the credit
available in the credit ledger or by cash. Even if the destroyed goods are sold as scrap with
output tax applied, ITC will be reversed as sale of scrap in the above context is merely sale of
destroyed goods and not eligible for ITC.
| SW Point of View: In this ruling, the Authority for Advance Ruling clarified that the scope of ‘goods destroyed’ under Section 17(5)(h) of the CGST Act does encompass both raw materials and finished goods. It emphasizes that ITC is accessible solely when taxable supplies are made, and if already utilized, it must be reversed or repaid. The ruling clearly states that ITC for destroyed finished goods or lost inputs is not available, even when these goods are sold as scrap with output tax. |
Source: 2023 (9) TMI 852 – AUTHORITY FOR ADVANCE RULING, TELANGANA
