Question63:One of my client is getting breakable goods from his supplier and availing the full ITC on the inputs. The supplier has issued credit note to my client mentioning there in 1% lump sum breakage discount is given for the supplies made during July to December 2017 without showing the GST component in the credit note.

Now my query is whether, we are required to reverse the GST component on the basis of the credit note issued to my client on the goods on which the full credit has already been taken.

Let me have your expert advice in the matter.


Answer The credit of Input is restricted in Section 17(5)(h) as Follows:-

"goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples".

In your case it is not mentioned whether the broken goods are further sold or not. If the broken items are further sold for whatever amount then credit will be allowed. But if the Broken goods are destroyed and not further sold then credit should be reversed.

For Example If it is a metal item then you can sale that scrap on whatever amount on payment of tax. so credit will be allowed.

But if it is a item of mud like Bricks then the same will be destroyed and required ITC to be reversed. (REPLY dt. 19/02/2018)