ITC not available on goods lost, stolen, destroyed or written off

In re Jay Chemical Industries Ltd (GST AAR Gujarat)

Question- Whether the Company is required to reverse input tax credit on inputs consumed in dye intermediates (which is also a finished goods), where such goods have been destroyed in fire?

We find that in GST regime, the scope of definition of inputs, capital goods and input services is very wide and covers almost all the imaginable goods and services that are directly or indirectly used in course or furtherance of business. However, Section 17(5) of the CGST/SGST Act, 2017 prescribes a list of goods or services on which ITC is not admissible. The opening para of Section 17(5) of CGST Act, 2017 reads as follows:-

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

………….

…………

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; ”

The bare analysis of above section makes it clear that this section has overriding effect and it states that the ITC shall not be available in respect of goods lost, stolen, destroyed or written off.

We further note that Section 16 (1) of the CGST Act, 2017 provides that any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.