Order Date – 02 September 2023

Facts –

• The Applicant, M/s. Geekay Wires Limited, engaged in manufacturing of Steel Nails and other steel products from steel wire rod and other input like Polypropylene, Copper wire, Paper tape etc. They availed input credit  on all the materials purchased and Output tax on Nails suppliedis regularly paid as per the provisions of the GST Act. They also sell scrap by paying GST against GST input.
• A fire broke out in the applicant's factory premises and major quantities of Finished goods as stated above are destroyed and now these finished goods can be sold only as a steel scrap in the market.

Issue –

• Whether the applicant is required to reverse ITC on raw material and scrap?

Order –

• The AAR observed that under Section 17(5)(h) clearly mentions that input tax shall not be availed in respect of “goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples”. This  has to be interpreted in the context of other statutory provisions i.e., 17(2) and 18(4) and the meaning has to be discerned by applying the principle ‘ex visceribus actus’.
• The scheme of the Act becomes clear from the combined reading of three provisions that input tax credit is available to a taxable person only when such taxable person makes taxable supplies. When the taxable supplies are not made input tax credit is not available under Section 17(2) and 17(5)(h). If the input tax credit is already utilized such credit needs to be paid back as given under Section 18(4).
• Therefore the input tax credit to the extent of manufactured goods destroyed or inputs destroyed is not available to the applicant and the same needs to be paid back either through the credit available in the credit ledger or by cash. Scrap sold by the applicant is nothing but a destroyed goods therefore sale of destroyed goods are not eligible for input tax credit.