EXAMPLE-105

XY Ltd. manufactured 1000 unit of goods “Z”. Raw material (X) of Rs 2 lakh on which Integrated tax of Rs 20000 is paid is used for production of 1000 unit of “Z”. Credit of integrated tax is utilized by the XY Ltd. Fire occurred and 200 unit of product Z  are destroyed in the factory.

  Is the company required to reverse the input taxcredit on input used for production of 200 unit of “Z”.

Answer

Supply of goods or services is ‘taxable event’ under GST. Central tax, State tax and Union tax shall be levied on Intra state supply of Goods or/and services. Tax called Integrated Tax shall be levied as per Section 5 of IGST Act, which is the charging section for Integrated Tax on all inter State supply of goods or/and Services.

In this example supply of goods has not taken place. therefore, no GST is payable on the goods destroyed in fire.

Section 17(5)(h) specifies that input credit will not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

 In view of the above provision Input tax credit in proportion to 200 unit of product is not eligible for ITC. Thus, the credit amounting to Rs.  20000/1000*200 = Rs. 4000 is required to be  added to output tax liability.