2021 (1) TMI 331 - AAR - GST

Reversal of Input Tax Credit - inputs consumed in dye intermediates (which is also a finished goods), where such goods have been destroyed in fire - HELD 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 bare analysis of the 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 - 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. Since the said inputs and capital goods have been used in manufacture of finished goods that have been destroyed, the same are not used in course or furtherance of business. We, therefore, hold that the Input Tax Credit taken on the inputs used in the manufacture or production of goods i.e. intermediate dye and the Input Tax Credit taken on input services used in or in relation to the manufacture or production of said goods shall be reversed.

Summary

Issues:
Reversal of input tax credit on inputs consumed in dye intermediates destroyed in fire.

Analysis:

Issue 1: Reversal of Input Tax Credit
The case involved a company engaged in manufacturing and marketing of dyes and dye intermediates, where a fire destroyed raw materials and finished goods worth approximately ?40 crores. The company sought clarification on whether it is required to reverse input tax credit on inputs consumed in dye intermediates that were destroyed in the fire. The applicant argued that since the inputs were used in manufacturing finished goods, which were subsequently destroyed, the inputs were consumed in the course of business and had lost their identity. The applicant contended that there is no provision in the SGST Act mandating the reversal of input tax credit on inputs consumed in finished or intermediate goods that are lost, damaged, or destroyed. The applicant relied on a Supreme Court case to interpret the phrase "in respect of," equating it with "on," to support their argument that input tax credit should not be reversed on destroyed inputs.

Issue 2: Interpretation of Relevant GST Laws
The Authority for Advance Ruling analyzed the definitions of input, input tax, and input tax credit under the Gujarat Goods and Services Tax Act, 2017. They highlighted Section 16 of the Act, which outlines the eligibility and conditions for taking input tax credit. The Authority emphasized that while the definition of input tax is broad, Section 17(5) of the Act restricts the availability of input tax credit on goods that are lost, stolen, destroyed, or written off. They noted that the provision overrides other sections and explicitly states that input tax credit is not admissible on goods lost or destroyed. Therefore, based on the provisions of the Act, the Authority ruled that the input tax credit on inputs used in the manufacture of goods that were destroyed in the fire must be reversed.

Conclusion:
The Authority for Advance Ruling ruled in the affirmative, stating that the company is required to reverse input tax credit on inputs consumed in dye intermediates that were destroyed in the fire. They based their decision on the provisions of the Gujarat Goods and Services Tax Act, 2017, particularly Section 17(5), which prohibits the availability of input tax credit on goods lost or destroyed. The ruling emphasized that since the inputs were used in manufacturing goods that were subsequently destroyed, the input tax credit on those inputs should be reversed.