Kerala businesses risk losing tax credits over goods lost in floods
Kerala’s State GST Act says input tax credit shall not be available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
New Delhi: Businesses that lost merchandise in the Kerala floods could lose credit for taxes paid on raw materials and capital goods as the finished products are not in the supply chain.
Goods and services tax (GST) officials have started seeking information from businesses and traders in Kerala about merchandise washed away in floods, invoking legal provisions that call for denying credits for taxes paid on raw materials and capital goods when the finished products are destroyed.
Officials told Mint that the exercise was only about data gathering for the government to take appropriate decision. However, experts said that, as per law, there is no room for discretion in giving businesses a waiver from reversing the tax rebates they have availed of.
Kerala’s State GST Act says input tax credit shall not be available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. It does not make any distinction between goods destroyed wilfully and those destroyed in a natural calamity and thus forces officials to seek information on the quantum of loss.
An internal communication of the department reviewed by Mint discussed the steps to be taken by officials under law, how to reach out to businesses and traders seeking information and options for assessees to pay up. The communication issued by deputy commissioner, Mattancherry, Kerala, said further instructions from higher authorities were awaited on the matter.
A senior official at the office of the deputy commissioner said on condition of anonymity that the effort is to gather data as there is lack of clarity on the issue. “No coercive action will be taken. We have to collect information about the quantum of goods lost, which is essential for the government to take an appropriate decision. We have experienced the pain of the calamity and the idea is not to penalize anyone,” said the official.
All that is being sought is a self-declaration of the loss of goods, said the official. “While technically a credit reversal is prescribed as per law, given the hardships, the government may want to consider addressing this issue.” said Abhishek Jain, tax partner, EY.
In GST, tax liability is computed on the basis of the value addition at every level of transaction where businesses can set off part of their tax burden using rebates for taxes already paid at the previous stage. When the final output is destroyed, the law prescribes that rebate for the taxes paid on inputs will no longer be available to the assessee for use. “The technical requirements of input tax credit reversal in inputs destroyed need to be relooked in case of natural calamities. In the excise legislation, it was possible to grant remission of duty in respect of finished goods destroyed,” said M.S. Mani, Partner, Deloitte India.
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