Case Of: M/s Geekay Wires Ltd.
Issued By: Telangana AAAR
Order No: No. AAAR/05 of 2025
Date: 20th Feb 2025
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ITC Availed on Inputs Used in the Manufacture of Finished Goods That Subsequently Got Destroyed Must Be Reversed
The Applicant, engaged in manufacturing steel products, availed Input Tax Credit (ITC) on raw materials used in producing finished goods, which were later destroyed in a factory fire.
Post-fire, the damaged finished goods (steel nails) were sold as scrap and applicable GST was paid on such sale.
The Applicant claimed ITC on inputs used to manufacture the destroyed goods, asserting eligibility under Section 16 of the CGST/SGST Act.
Telangana AAR ruled that ITC must be reversed under Section 17(5)(h), which bars credit on goods lost or destroyed; the Applicant filed an appeal against this ruling before AAAR.
The AAAR observed that while Section 16 permits ITC on goods used in the course or furtherance of business, this right is expressly limited by restrictions under Sec 17(5), which overrides Sec 16.
It held that Sec 17(5)(h) is clear and bars ITC on goods “in respect of” those lost or destroyed, and this includes cases where inputs were used to manufacture finished goods that were later destroyed.
The authority relied on precedent including Tata Consultancy Services and GM Ordnance Factory Bhandara, affirming that intent to use does not override actual destruction postmanufacture.
The AAAR upheld the AAR ruling, confirming that ITC must be reversed in such cases where finished goods, though made using eligible inputs, are destroyed in fire and rendered unfit for sale.