Kerala businesses risk losing tax credits over goods lost in floods

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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.

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