The impact left behind by Covid-19 can be felt far and wide. Various companies have faced some major setbacks to their businesses as stocks sat idle for a tad bit too long. Companies especially those dealing with perishable goods are the ones facing the heat, they now face a double whammy of sort, their goods getting destroyed and not being able to claim input tax credit.
Under the goods and services tax framework, the input tax credit allows businesses to set off any tax paid on raw material or input services against any future tax liabilities. Unfortunately, this benefit is not available for goods that are lost, stolen, destroyed or distributed as free sample.
Due to the lockdown, various reports of perishable raw materials getting damaged in warehouses and even during transit has been of huge concern to these manufactures. They are now forced to reverse the input tax credit; this adds further distress to the businesses that are already struggling due to stalled activities during these extended lockdowns.
The tax on raw materials were already as high as 18% and cumulative input tax credit on goods destroyed, lost or stolen could be hundreds of crores during this lockdown period. Most impacted are small and medium enterprises like food processing, farm items and grocery due to inventory loss and add to that reversal of input tax credit will lead to higher tax outgo, says tax experts.
“The section that necessitates this input tax credit reversal in case of destruction of goods becomes extremely crucial in the current scenario” Abhishek Jain EY India tax partner said. “Many businesses have pleaded to the government on this additional burden and are expecting a fiscal relief on this.” This has been challenged in the past but cases are still pending. Section 17(5)(h) of the CGST Act deals with this restriction.
Abhishek A Rastogi, partner, Khaitan & Co. said that they will challenge this issue in court and try to bring justice to all those who are facing the heat during this pandemic. As the lock downs keep extending businesses have a huge task in their hands to recover from this major setback to operations.
