Reversal of GST Input Tax Credit on goods destroyed in Floods

By | September 3, 2018
(Last Updated On: September 3, 2018)

Contents

Reversal of GST Input Tax Credit on goods destroyed in Floods

The Goods and Services Tax Act allowsa registered person to take credit of input tax charged on supply of goods or services if they are used in the course or furtherance of his business.There isa negative list of goods or services under section 17(5) of the CGST Act in respect of which ITC can’t be allowed. The negative list includes certain goods and services, which are not eligible to provide the credit of GST paid to the recipient. The Input tax credit is allowed to a taxpayer on the assumption that the underlying goods or services have been used for furtherance of business. If goods can’t be used for business, the Input tax credit is not allowed.

The recent devastating floods have badly affected the taxpayers who are registered in the State of Kerala, Mahe (a town in Puducherry) and Kodagu (a district in Karnataka). The business entities have lost goods in this natural calamity which are worth millions of. As these goods have never been used for the business purposes, by virtue of Section 17(5)(h), the input tax credit shall not available in respect of such goods. In other words, if goods are lost or destroyed due to any reason including a natural calamity, then ITC can’t be allowed. If ITC has already been availed, then it should be reversed.

In case the input tax credit has not been reversed, the proper officer can issue a show cause notice in Form DRC-1 on the ground that ITC has been wrongly availed or utilized and asks the taxpayer to pay the amount specified in notice along with interest at the rate of 18% and penalty. However, if the taxpayer has paid the tax along with interest within 30 days of SCN, then no penalty would be payable and all the proceedings shall be deemed to be concluded.

In this regard, the Deputy Commissioner, State GST Department, Mattancherry, has issued the following instructions to their departmental officers:

  1. To affix a notice in Dept. offices to direct the taxpayers to report the amount of damage or loss of goods in floods.

  2. To conduct a meeting between Dept. officers and tax consultants and practitioners.

  3. To send an e-mail to all the taxpayers to submit a stock statement of damaged items with information on – a) damaged stock on which ITC has been availed, b) damaged stock on which ITC has not been availed, c) damaged stock originally purchased from unregistered suppliers. The statement of damaged stock for which ITC has not been availed has to be submitted for the month of August, 2018 or for all those months for which GST returns have not been filed. These statements are to be filed by the traders and manufacturers. The traders and manufacturers are required to provide the details of item, HSN, quantity, value, Rate, Invoice no., supplier GSTIN, whether entire quantity has been damaged, value of raw materials consumed, etc.

  4. To conduct the field visit to ascertain the genuineness of the damage reported.

  5. To verify the statement of damaged goods with GST data in backend system.

This would be a double whammy for the suppliers who are doing business in the affected areas. The instruction issued by the authority is in accordance with the law. If Govt. intends to provide the relief to the supplier, it can relax this provision for the suppliers operating in the affected areas of Kerala, Puducherry and Karnataka.


Instruction from Deputy Commissioner

From,
The Deputy Commissioner
State GST Department
Mattancherry

To,
Assistant Commissioner, Mattancherry/ Muvattupuzha
All STO’s

Sir.

Sub:- Disaster Management – instructions to officers – reg.

The devastating flood has badly affected business community as well. Large scale damage of goods has been reported from all parts of Mattancherry. The situation may not be different in other districts also.

As per section 17(5)(h) input tax credit shall not be available in respect of goods lost, stolen, destroyed written off or disposed of by way of gift or free samples

By virtue of section 73(1) a proper officer may issue a show cause notice in Form DRC-1 requesting him to pay the amount specified in the notice along with interest (@ 18%) and penalty. The proper officer may serve a statement containing input tax wrongly availed in Form DRC-2.

Upon receipt of DRC-1 and 2, if the tax payer pays the tax along with interest within 30 days of issue of SCN, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

However the tax payer can pay the amount of tax along with interest on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. The proper officer shall after considering the reply if any, determine the amount of tax, interest and penalty equivalent to 10% of tax or Ten thousand rupees whichever is higher.

The following instructions are issued to the officers.

1) Affix notices in office premises requesting the tax payers to report the damage/ loss of goods.

2) Conduct meeting of tax consultants and practitioners locally.

3) Send mail/mange to all the tax payers to report the loss or damage of goods in the following format.

Stock statement of damaged items.

a) Stock lost/damaged for which ITC availed,

(i) Goods statement for traders
Sl. No.
Items
HSN
Quan-tity
Value
Rate of Tax
Invoice No and date
Supplier GSTIN
Whether entire quan-tity damaged
If No
Yes
No
Total Invoice Value
Quan-tity

(ii) Finished/ semi finished goods for manufactures

Sl. No.
Items
HSN
Quan-tity
Value
Rate of Tax
Value of raw material consumed
Item
HSN
Rate of Tax
Invoice No and date
Supplier GSTIN
Total Invoice Value
Quan-tity

(b) Stock lost/damaged for which ITC not availed. (inward supply during August or Return not filed).

(i) Goods statement for traders

Sl. No.
Items
HSN
Quan-tity
Value
Rate of Tax
Invoice No and date
Supplier GSTIN
Whether entire quantity damaged
If No
YES
No
Total Invoice Value
Quan-tity

(ii) Finished/ semi finished goods for manufactures

Sl. No.
Items
HS N
Quan-tity
Value
Rate of Tax
Value of raw material consumed
Item
HSN
Rate of Tax
Invoice No and date
Supplier GSTIN
Total Invoice Value
Quan-tity

(c) Stock Lost/damaged inward supply from unregistered persons.

(i) Goods statement for traders
Sl. No.
Items
HS N
Quan-tity
Value
Rate of Tax
Invoice No and date
Supplier GSTIN
Whether entire quantity damaged
If No
YES
No
Total Invoice Value
Quan-tity

(ii) Finished/ semi finished goods for manufactures

Sl. No.
Items
HSN
Quan-tity
Value
Rate of Tax
Value of raw material consumed
Item
HSN
Rate of Tax
Bill of Supply/ Invoice No and date
Supplier GSTIN
Total Invoice Value
Quan-tity

4) Conduct field visit to ascertain the genuineness of the damage reported

5) Cross verify the damage / loss statement with GST data in Backend system.

Further instructions are awaited from Commissionerate.

Yours faithfully

Deputy Commissioner,
Mattaneherry.

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