Block Credit - Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples [section 17(5)(h)] - GST Ready Reckoner - GST

Section 17(5) Clauses (h) - Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples Goods lost, stolen, destroyed - Following situation accrued in during the business like Transit loss , Store Loss, Processed Loss If ITC Taken - Reversed the ITC or add in output tax liability in GSTR-3B when any of the above scenarios happen. If ITC not Taken - Do not take it. Written off or disposed of by way of gift or free samples - Free sample to unrelated person will not subject to GST, but ITC will have to be reversed. Free sample given to related person will be subject o GST and then ITC will be available. Free supplies given under corporate social responsibility will not subject to GST and ITC will not be available. Gifts procured for customers or distributors, input tax on these gifts are not eligible for ITC. Goods or services procured for brand or sales promotion , input tax on these goods or services are not eligible for ITC. Various Discount Schemes, like buy one get one free offer, buy more save more, volume discount, secondary discounts ( circular no. 92/11/2019 GST dated. 07.03.2019) Examples Example 1:- A company has entered to an agreement with customer for manufacture and supply of cement pipe for their exclusive use. A company manufactured the product but before receiving the inspection certificate, their customer reject some quantity of goods on ground of quality. As per agreement the reject quantity will be destroyed in front of customer and shall not be sold. In that case, as per section 17(5)(h), ITC is blocked in respect of destroyed goods Accordingly, since in the given case the cement pipe have been destroyed, ITC attributable to such pipes will not be allowed. Thus, in the given case, if credit has already been availed, the same will need to be reversed. Example 2:- Sometimes goods are destroyed or lost due to various reasons? Can a person take ITC to the extent of such goods? No, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. In addition, ITC with respect of goods given as gifts or free samples are also not allowed. [ Section 17(5)(h) of CGST Act] [ refer to Qus. 21 FAQ by CBIC on Input tax credit ] Example 3:- W hat are the requirements for clearance of physician samples distributed free of cost? In case of clearance of physician samples distributed free of cost, the ITC availed on the said samples has to be reversed in view of the provisions under Section 17(5)(h) of the CGST Act, 2017. No tax is payable on clearance of physician samples distributed free of cost as the value of supply is zero and no credit has been availed. [ refer to FAQ Qus. 2 by CBIC on Drug and pharmaceuticals ]