2021 (9) TMI 571 - AAR - GST

Reversal of Input tax credit - inputs consumed in expired Cakes Pastries - goods used as raw material in manufacturing of expired cakes pastries that were kept in display for use in course or furtherance of business - HELD THAT - Cakes and pastry have limited shelf life and after expiry these bakery items are prohibited from sale. Attention drawn to Section 7 of Prevention of Food and Alteration Act, 1954 prohibiting the sale of expired goods as such are not fit for consumption. Further section 273 Indian Penal Code criminalizes the act of sale of harmful perishable food products - Thus, the act of throwing away expired cakes and pastries is akin to destroying the expired food products, for the applicant destroys by throwing them away. The Non-obstante clause of Section 17(5)( h) of CGST Act, 2017 overrides the operation of section 16 and section 18 of CGST Act provisions contrary to this subsection and thereby blocks ITC admissibility contrary to the said sub section. Subject goods being destroyed are covered under this non obstante clause (h) of section 17(5) CGST Act. The subject matter is covered under section 17(5) (h) of CGST Act and thereby ITC on inputs used in manufacturing expired cakes pastries is not admissible and required to be reversed.

Summary

Issues:
1. Requirement for reversal of input tax credit on goods used as raw material in manufacturing of expired cakes & pastries kept in display for business purposes.

Analysis:
A. Brief Facts:
The applicant, engaged in manufacturing and distributing cakes & pastries, sought an Advance Ruling on whether there is a need to reverse input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes.

B. Question on Advance Ruling:
The applicant specifically asked whether there is a requirement to reverse input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes.

C. Personal Hearing:
During the virtual hearing, the applicant clarified that the expired cakes & pastries are thrown away, emphasizing their perishable nature and ineligibility for sale due to expiration.

D. Findings:
1. The CGST Act and GGST Act have similar provisions, with differences only in specific areas.
2. The Authority considered all submissions and focused on whether input tax credit on raw materials used in expired cakes & pastries should be reversed.
3. The applicant confirmed the perishable nature of the cakes & pastries displayed and the disposal method of throwing away expired products.
4. The Authority highlighted the legal prohibition on selling expired food items and the criminalization of selling harmful perishable products.
5. Section 17(5)(h) of the CGST Act, concerning 'Blocked Credit,' was referenced, emphasizing that destroyed goods fall under this provision, blocking input tax credit admissibility.
6. Referring to a government circular, the Authority concluded that the scenario aligns with the circular's provisions on reversing input tax credit for destroyed goods.
7. The ruling stated that input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes is not admissible and should be reversed.

In conclusion, the Advance Ruling Authority determined that the input tax credit on raw materials used in manufacturing expired cakes & pastries displayed for business purposes is not admissible under section 17(5)(h) of the CGST Act, requiring reversal.