The Gujarat Authority of Advance Ruling (AAR) in its recent ruling in the case of M/s. Kanayalal Pahilajrai Balwani has ruled that Input Tax Credit (ITC) is not allowable on expired cakes & pastries and needs to be reversed as such credit is blocked under section 17(5) (h) of the CGST Act,2017.
Facts of the Case
The applicant, M/s. Kanayalal Pahilajrai Balwani has been engaged in the business of manufacturing & distributing cakes & pastries items. The applicant sends cakes & pastries to the distributors to keep them on display to fascinate consumers.
The cakes & pastries are of perishable nature and cannot be preserved for a longer period and on regular intervals, all cakes & pastries kept in the display have to be compulsorily replaced after the expiry of said bakery item.
The applicant submits that display assists them to achieve the objectives of continuing to conduct the business of manufacturing and selling cakes & pastries in future also.
Issue on which Ruling is sought
The applicant has sought the advance ruling on the issue in respect of admissibility of an input tax credit of tax paid or deemed to have been paid.
Arguments of the Applicant
The applicant submitted that there is no free/sample supply of extra cakes & pastries to distributors. Such extra cakes & pastries are supplied with tax invoice which means that supply of goods is taxable supply.
When such extra cakes & pastry expired and return back to the applicant , assessee issues credit note for the same. Hence, there is no free / sample supply of goods by the taxpayer as per section 17(5) (h) of the CGST Act,2017.
Order of AAR: Deliberation and Ruling
We hold that Cakes and pastry have limited shelf life and after expiry these bakery items are prohibited from sale. We draw our attention to Section 7 of Prevention of Food and Alteration Act, 1954 prohibiting the sale of expired goods as such are not fit for consumption. Further section 273 Indian Penal Code criminalizes the act of sale of harmful perishable food products. We hold the act of throwing away expired cakes and pastries is akin to destroying the expired food products, for the applicant destroys by throwing them away.
We find that subject goods being destroyed are covered under this non obstante clause (h) of section 17(5) CGST Act.
Government Circular No. 72/46/2018-GST dated 26.10.2018 issued vide F. No.CBEC/20/16/ 04/2018-GST has clarified the procedure in respect of return of time expired drugs or medicines-Reg. Relevant Para’s of said Circular are enumerated as follows :
“3 B (d) Further, where the time expired goods, which have been returned by the retailer/wholesaler, are destroyed by the manufacturer, he/she is required to reverse the ITC attributable to the manufacture of such goods, in terms of the provisions of clause (h) of sub-section (5) of section 17 of the CGST Act.
In view of the above deliberations, the Coram of Sanjay Saxena and Arun Richard ruled that subject matter is covered under section 17(5) (h) of CGST Act and thereby ITC on inputs used in manufacturing expired cakes & pastries is not admissible and required to be reversed.
Relevant Statutory provision:
Section 17(5) (h) of the CGST Act, 2017
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;
READ / DOWNLOAD ORDER:
GUJ_AAR_16_2021_30062021_KPB CMT***
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
