Recently in my client factory stock destroyed due to fire and GST dept send a notice asking them to reverse the GST.
Pls clarify, whether it is required to do and what is the reason for the same. and also tell me the necessitate entries to be passed for the same.
As per section 17(5) point No 10, Input tax credit not available if goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and needs to be reversed if availed wrongly.
The reason is simple, govt allows to take ITC, when you are buying the goods for sale or use for further manufacturing and govt will get GST on margin added in addition to your purchase cost, but in the above case goods lost due to fire and can't be sold or use for manufacturing. Hence by this u can't take ITC on goods lost by fire.
The input tax credit reversed shall be transferred to expenses and the value of stock in hand shall be reduced from the closing stock value by passing stock journal entry.
Hope you got clarity..
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