SEC 17(5)(h), Goods and Services Tax - GST

[KANHAIYA AGRAWAL]

The fire took place in my client factory. there is loss of some raw material .

We filed the claim with the insurance company. The Insurance company admitted the amount of loss excluding the GST and we retain the goods at salvage value.

As we did not recover the GST amount from the insurance company hence we did not reverse the ITC claimed (as required under section 17(5)(h) of CGST Act.)

Is there any disobeyment of Section 17(5)(h) of CGST Act???

Posts / Replies

[Amresh kumar]

In my opinion whatever little knowledge I have the ITC shall not be reversed as the ITC part is not claimed from insurance.

Further since the GST has already been paid to the exchequer on purchase of raw material.

Further remission of duty in the erstwhile excise regime was on final manufactured goods.

Even in my own case an E.O.U unit suffered a loss in floods. The CRA took objection for ITC part and same reply has been submitted.

Of course there is no intimation of the objection being settled or Para closed but neither SCN has been issued. The reply was submitted to CRA more than a year back.

[Sadanand Bulbule]

Dear all,

Please refer the following AAR on reversal of ITC in the case of destruction of goods in the fire mishap:

2023 (9) TMI 852 - AUTHORITY FOR ADVANCE RULING, TELANGANA - IN RE: M/S. GEEKAY WIRES LIMITED,

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Thanks a lot for posting the above decision.

You have not only enriched my knowledge on the issue but also saved the precious time of the visitors of TMI website. Also rescued them from the rigours of litigation. Facts and circumstances of each and every case are not always same.

Knowledge itself means factually aware of something.

 

[Amresh kumar]

Sadanand Bulbule Sir and Sethi Sir,

The AAR judgment cannot be set as a precedence as it is applicable only to the concerned assessee.

More over it is obvious that majority of AAR judgments are biased and not judicious .

My point is when an input has been purchased the GST amount has already been paid to the Govt.

If insurance is claimed for the GST part then it has to be reversed as it will amount to double benefit.

I have contested on this point only to CRA objection to one of E.O.U. and no SCN has been issued till date . Even if it is issued we are going to contest this to its logical end.

It is felt that a proviso has to be inserted after Sec 17 (5)

Will keep TMI updated on this matter .

[Sadanand Bulbule]

Dear Kumar Sir

Having spent 4 and half decades in this field, I am well aware of your rightful expressions. Law always takes its own course. With due respect to all subject experts, I wish to remind here that, this is only a "discussion forum" and not a debating forum per say. There are most and more experts,without coming on the front position, are silently observing every query and casket of diverse replies. Every reply has its own powerful impact and it need not be an instant solution. Hope visitors to TMI would happily appreciate it with positive vibes to move forward. Journey is as lively as the destination.

Regards.

[Amit Agrawal]

With regards to AAR ruling quoted in Post No. 27 above (i.e. 2023 (9) TMI 852 - AUTHORITY FOR ADVANCE RULING, TELANGANA IN RE: M/S. GEEKAY WIRES LIMITED), my views are as under:

A. Subject matter under discussion here (Issue Id: - 118820) is "fire damaging raw material" whereas said AAR ruling deals with "fire damaging Finished Goods".

B. Said AAA grossly erred in coming to the conclusion that ITC needs to be reversed by misapplying Section 17(2), 17(5)(h) & 18(4) to the given situation before them.

B2. Section 17(2) is not applicable as there is no goods involved in effecting exempt supplies. Section 17(5)(h) is not applicable because the raw material - on which ITC was taken by the tax-payer - was not destroyed by fire. Section 18(4) is not applicable because tax-payer's output supply does not get wholly exempted nor tax-payer opts for composition scheme u/s 10 because of the event of fire destroying his finished goods.

B3. If anything, from reading of said ruling, I became much more confident about my views that no reversal of ITC is required in given situation before AAR. This is because I find that Department does NOT have any strong legal grounds to deny ITC against "raw material" just because "fire destroyed finished goods manufactured using such raw material".

B4. I also find that there is no legal provision (i.e. similar to Section 18(4)) incorporated in Section 17(5) or in any rules which can demand "reversal of ITC against inputs" which are "contained in semi-finished or finished goods" when such "semi-finished or finished goods" gets destroyed by fire.

B5. Such ruling just shows why one should never take Dept's officer's views on their face value while interpreting any legal provisions / rules.

B6. No wonder why Dept. find itself on losing side - in very major number of cases - when tax-disputes reaches tribunal or above courts.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Please read Para A of my last post above as follows:

A. Subject matter under discussion here (Issue Id: - 118820) is "fire destroying raw material" whereas said AAR ruling deals with "fire destroying Finished Goods".

[KASTURI SETHI]

Sh. Amresh Kumar Ji,

Dear Sir, My views are detailed below

"(i) The AAR judgment cannot be set as a precedence as it is applicable only to the concerned assessee. : It is a matter of common knowledge.

(ii) More over it is obvious that majority of AAR judgments are biased and not judicious .:

I do not agree. Rather, applicants are biased. Every person expects decision in his/her favour irrespective of the merits. Such bent of mind can be found in other fora also i.e. Adjudicating Authority, Commissioner (Appeals),Additional/Joint Commissioner (Appeals), Tribunal, Courts . Not to speak of above, even in this Discussion Forum every querist expects opinion in his/her favour which is not possible.

(iii) My point is when an input has been purchased the GST amount has already been paid to the Govt.

Tax paid character on raw material is not in dispute. The dispute is about the usage. ITC earned has not been used in the course of business or furtherance of business. Mere, 'intended to be used' is not only requirement. Must be translated into reality. The conjunction 'OR' integrates all these words/phrases :-

"used or intended to be used in the course or furtherance of his business"

Cannot be isolated.

(iv) If insurance is claimed for the GST part then it has to be reversed as it will amount to double benefit. :

There is no room for 'if' and 'but' in the realm of law.

(v) I have contested on this point only to CERA objection to one of E.O.Us. and no SCN has been issued till date . Even if it is issued, we are going to contest this to its logical end.

Very eager to see the results.

(vi) It is felt that a proviso has to be inserted after Sec 17 (5)

No comments. We are talking about what has actually happened.

(vii) Will keep TMI updated on this matter .;

If you keep track and update, I shall be highly thankful to you. It will be in public interest also.

Thanks & warmest regards.

Disclaimer : These are my personal views and not meant for making these basis in any judicial/semi-judicial proceedings

[Amit Agrawal]

In my humble view, the words "intended to be used" cannot mean "used" while interpreting Section 16(1). Otherwise, there is no need to use the words "intended to be used" there.

Lets look this issue from other angle: If the words "intended to be used" u/s 16(1) means "actual usage eventually i.e. sometime down the line from day of receipt of goods" then, there was no need of using the words "lost, stolen, destroyed" to deny ITC against those goods u/s 17(5)(h) and Section 16(1) would have taken care of such situation itself to deny ITC against goods "lost, stolen, destroyed".

All this again proves that the words "intended to be used" u/s 16(1) cannot mean "actual usage eventually", in my view. Thus, Section 16(1) cannot be used to deny ITC against raw material material destroyed by fire, IMHO. Only due to Section 17(5)(h), such ITC can be denied.

And, there is no legal provision / rules to demand "reversal of ITC against inputs" which are "contained in semi-finished or finished goods" when such "semi-finished or finished goods gets destroyed by fire". Here, these inputs (i.e raw material) are actually used in the manufacturing activity and they did not just remain "intended to be used" in the course or furtherance of business of the tax-payer (thereby, fulfilling requirements of Section 16(1) on both counts i.e. 'used' as well as 'intended to be used'). But here, Section 17(5)(h) is not applicable because the raw material - on which ITC was taken by the tax-payer - was not destroyed by fire.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

W.r.t. my replies at seral nos. 8, 17 & 33, I further clarify that here the word, 'OR' means 'AND' as per legal dictionary based on the judgements of Hon'ble Supreme Court.

[Amit Agrawal]

Now, lets deal with the arguments that the word 'or' should be read as 'and' while interpreting Section 16(1) and IF SO, said Section 16(1) will be as follows: Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used AND intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

In other words, if one takes above argument on its face value, it means that for taking ITC as per Section 16(1), inward goods / services should satisfy DUAL condition i.e. Such inward goods / services should ONLY ONLY be "used" BUT ALSO "intended to be used".

In continuation of my last post where I explained reasons behind usage of the words the words "lost, stolen, destroyed" to deny ITC against those goods u/s 17(5)(h) & how Section 16(1) should be seen in this context which are yet to be refuted by anyone, I find above line of argument (i.e. reading of 'or' as 'and') is again untenable because what is 'used' is always with "the intention to use". In other words, no-one 'uses' goods / services for his business without any intention to use them. And if so, there was no need to use the words 'intended to be used' as an additional requirement to avail ITC u/s 16(1). But, as Section 16(1) has the word 'or', it must be given its natural meaning.

With regards to above line of argument (i.e. reading of the word 'or' as 'and'), The Hon’ble Supreme Court's observations in COMMISSIONER, CUSTOMS CENTRAL EXCISE AND SERVICE TAX, PATNA VERSUS M/S SHAPOORJI PALLONJI AND COMPANY PVT. LTD. & ORS. AND UNION OF INDIA & ORS. VERSUS M/S SHAPOORJI PALLONJI AND COMPANY PVT. LTD. - 2023 (10) TMI 748 - SUPREME COURT are worth noting and same are as follows:

"22. Having noticed some of the precedents in the field of interpretation of statutes, we now move on to a little bit of English grammar. The word “or” as well as the word “and” is a conjunction; and it is well known that a conjunction is used to join words, phrases, or clauses. On how the conjunctions “or” and “and” are to be read, guidance could be drawn from authoritative texts and judicial decisions. As per Justice GP Singh’s Principles of Statutory Interpretation, the word “or” is normally disjunctive while the word “and” is normally conjunctive. In English law, the position is clear as crystal, as explained by Lord Scrutton in Green vs. Premier Glynrhonwy Slate Co. (1928) 1 K.B. 561, page 569, that one does not read “or” as “and” in a statute unless one is obliged, because “or” does not generally mean “and” and “and” does not generally mean “or”.

23. When the meaning of the provision in question is clear and unambiguous by the usage of “or” in clause 2(s), there remains no force in the submission of Ms. Bagchi that “or” should be interpreted as “and”. In our opinion, the word “or” employed in clause 2(s) manifests the legislative intent of prescribing an alternative. Going by the golden rule of interpretation that words should be read in their ordinary, natural, and grammatical meaning, the word “or” in clause 2(s) clearly appears to us to have been used to reflect the ordinary and normal sense, that is to denote an alternative, giving a choice; and, we cannot assign it a different meaning unless it leads to vagueness or makes clause 2(s) absolutely unworkable. We are fortified in our view by the decision of this Court in SRI JEYARAM EDUCATIONAL TRUST & ORS. VERSUS A.G. SYED MOHIDEEN & ORS. - 2010 (1) TMI 1209 - SUPREME COURT, where it was held thus:

..........................”

Again, Supreme Court's following observations in case of UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. - 2011 (2) TMI 6 - SUPREME COURT  are worth noting:

"19. A taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. In support of the same we may refer to the decision of this Court in COMMISSIONER OF SALES TAX, UP. VERSUS MODI SUGAR MILLS LTD.   -  1960 (10) TMI 65 - SUPREME COURT wherein this Court at Para 10 has observed as follows:-

"10......... In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency."

20. Therefore, the attempt of the High Court to read down the provision by way of substituting the word "OR" by an "and" so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules."

As said before, from my last post, "my reasoning behind usage of the words the words "lost, stolen, destroyed" to deny ITC against those goods u/s 17(5)(h) and how Section 16(1) should be seen in this context" is yet to be refuted by anyone.

Similarly, non-availability of similar argument itself (i.e. about interpretation of Section 16(1) even if it is said that the word 'or' should be read as 'and') to demand "reversal of ITC against inputs" which are "contained in semi-finished or finished goods" when such "semi-finished or finished goods gets destroyed by fire" is not yet refuted by anyone. Here, these inputs (i.e raw material) are actually used in the manufacturing activity and they did not just remain "intended to be used" in the course or furtherance of business of the tax-payer (thereby, fulfilling requirements of Section 16(1) on both counts i.e. 'used' as well as 'intended to be used').

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Sadanand Bulbule]

Dear all

I repeat here that, this forum is not to harm feelings of any one, irrespective of his/her opinion is acceptable or otherwise. Opinion,however strong, is not more than an opinion, much less judgement. The narrow perceptive of facts confuses man's reason, judgement and makes himself appear taller then others. But it is not reality, only an illusion. The truth in adage "Thoughts are things" should be duly respected! End of the day, when jewellery is liquified in the right conditions, what remains in the melted state is gold only. It comes back to its original and right form. So is this forum to melt outdated jewellery to get back pure gold, again to convert it into new brilliant jewellery, which carries more value than the molten gold.

[Amit Agrawal]

'Giving own interpretation of law with solid reasoning as well as disagreeing with a contrary view/s by giving detailed justification & reasoning for disagreement' can NOT be seen as hurting feelings of anyone. Otherwise, it will be impossible to meaningfully contribute on such public discussion forum.

All querists on TMI forum and its visitors needs comprehensive view of various facets of any controversy under discussion and legal justification / reasons for both sides of any argument wherever there is disagreement among contributors.

While all these views are, no doubt, opinions & not judgements, all querists on TMI forum and its visitors have a right or expectation to see "quality discussion". And that "quality" cannot come unless disagreement/s and legal reasoning for disagreement is openly & minutely discussed.

Hence, I stand with everything I said in all my posts earlier. And wherever time permits, I intent to continue making meaningful contributions on this discussion forum.

And, to everyone feeling offended, I would give same suggestion as was given by me to Shri Padmanathan Ji in my post at serial No. 20 above.

[Sadanand Bulbule]

Dear all

"Reflected consciousness is not the true Self or real light, but shadow of light". __ says The Bhagavad Gita.

[Amit Agrawal]

I agree with Shri Sadanand Bulbule Ji for his last post above. And I am also sure I have not got reflected consciousness. I guess each one should decide this for themselves......no human has power to decide the state of other person's consciousness.

[Sadanand Bulbule]

Dear Amit sirji

I appreciate your quick and kind gesture. This principle applies to all human beings as we are not and cannot be perfect. At the same time, please do not tag yourself in this context. We are here to correct ourselves by mutual participation. More than the querists, the experts are becoming more expert on every occasion. No one can sit on the golden throne and dictate the terms in democratic society. End of the day, we are all students till our end. Keep on commenting as usual. TMI is getting enriched by the cylo of skilled and matured thoughts.

Happy Diwali greetings in advance.

[Amit Agrawal]

@ Shri Sadanand Bulbule Ji,

You are welcome!

Please note that I NEVER got any reason whatsoever to tag myself with context of your post at serial No. 39 above, because I got clear the true Self consciousness. And my all earlier post/s above are result of that true Self consciousness.

I wish you, All other professional colleagues, All Querists and all visitors to TMI website a very happy Diwali and prosperous new year ahead!