Company required to Reverse ITC on Inputs consumed in dye Intermediates, where such Goods have been destroyed in Fire: AAR [Read Order]

The Gujarat Authority of Advance Ruling (AAR) ruled that the company is required to reverse ITC on inputs consumed in dye intermediates, where such goods have been destroyed in a fire.

The applicant, M/s Jay Chemical Industries Ltd. is engaged in manufacturing and marketing of dyes and dye intermediates. The Company has five manufacturing units situated at Kalamsar (Taluka- Khambhat), Vatva, Odhav, Sanand and Bharuch.

It was submitted that a fire broke out on the night of 27th June, 2020 at around 8:40 PM in the warehouse of the Khambhat Unit of the applicant. Though the exact reason for the fire is not known and the Forensic Science Laboratory (FSL) report is awaited, it is estimated that raw material, intermediate/ finished goods of approx. Rs.40 Crores were destroyed.

The Company manufactures Vinyl Sulphone, H Acid, M.P.D.S.A, C.P.C. Acetanilide Flakes, P.C.V.S. which itself is a finished and marketable product. However, as the Company is engaged in manufacturing of dyes and these dye intermediates act as an intermediate product in its manufacturing, the Company captively consumed such products. The dye intermediates are also sold by the Company in the market depending on the demand and pricing parameters.

Since dye intermediates were also destroyed in the fire, the Company sought clarification from the Advance Ruling Authority on whether the Company is required to reverse input tax credit on inputs consumed in dye intermediates (which is also a finished goods), where such goods have been destroyed in fire.

The Coram consisting of Sanjay Saxena and Mohit Aggarwal observed that hold that the Input Tax Credit took on the inputs used in the manufacture or production of goods i.e. intermediate dye and the Input Tax Credit taken on input services used in or in relation to the manufacture or production of said goods shall be reversed.

The AAR clarified that Section 17(5) of CGST Act, 2017 has an overriding effect and it states that the ITC shall not be available in respect of goods lost, stolen, destroyed, or written off.

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