Example

ABC Ltd. manufactured 2000 unit of goods 'Y'. Raw material (X) of Rs3 lakh on which Integrated tax of Rs30000 is paid is used for production of 2000 unit of 'Y'. Credit of integrated tax is utilized by the ABC Ltd. Fire occurred and 500 unit of product Y  are destroyed in the factory.

Is the company required to reverse the input tax credit on input used for production of 500 unit of 'Y'.

Answer 

Supply of goods or services is 'taxable event' under GST. Central tax, State tax and Union tax shall be levied on Intra state supply of Goods or/and services. Integrated Tax shall be levied as per Section 5 of IGST Act, on all inter State supply of goods or/and Services.

In this example supply of goods has not taken place, therefore no GST is payable on the goods destroyed in fire.

Section 17(5)(h) specifies that input tax credit will not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

 In view of the above provision Input tax credit in proportion to 500 unit of product is not eligible for ITC. Thus, the credit amounting to Rs.  30000/2000*500 = Rs. 7500 is required to be  added to output tax liability.