Introduction
Expired inventory and obsolete stock are a reality for businesses dealing in FMCG, pharmaceuticals, food processing, and electronics. When goods expire or become obsolete, the question arises: Must the ITC be reversed?
The answer is yes. ITC on expired and obsolete stock must be reversed under Section 17(5)(h). This guide explains the legal framework and the compliance requirements.
Legal Framework: Section 17(5)(h) of the CGST Act, 2017
Blocked Credit on Expired and Obsolete Goods
Section 17(5)(h) blocks ITC on goods lost, stolen, destroyed, written off, or disposed of. Expired inventory and obsolete stock fall within this provision.
Industries Affected
- FMCG and Food Processing: Shelf-life expiries and seasonal goods.
- Pharmaceuticals: Expired medicines and drugs.
- Retail and Distribution: Overstocked items and seasonal markdown.
- Electronics: Obsolescence and clearance sales.
- Chemicals: Batch failures and storage-induced degradation.
The Reversal Trigger
The moment goods leave the taxable supply chain via expiry or write-off, the original ITC becomes a permanent liability. Reversals must be reported in GSTR-3B and reconciled in annual returns.
Documentation Required
- Expiry Report: Documentation of the expired inventory.
- Write-Off Approval: Board or management approval for the write-off.
- Destruction Certificate: Certificate of destruction from a third-party agency.
- Reversal Calculation: Computation of the ITC to be reversed.
- Stock Records: Inventory records supporting the write-off.
- GSTR-3B Disclosure: Disclosure of the reversal.
Best Practices
- Document Expiry: Maintain records of all expired inventory.
- Obtain Destruction Certificates: Use third-party destruction agencies and obtain certificates.
- Reverse ITC Promptly: Reverse ITC in the GSTR-3B for the period of write-off.
- Conduct Regular Stock Audits: Identify expiring stock before it expires.
- Implement Inventory Management: Use FIFO or FEFO systems to minimise expiry.
- Seek Professional Assistance: Where the write-off is significant, seek guidance.
Conclusion
ITC on expired inventory and obsolete stock must be reversed under Section 17(5)(h). Proper documentation — expiry reports, write-off approvals, and destruction certificates — is essential. Timely reversal and disclosure are critical.
Dealing with expired or obsolete stock? Anuj Desai & Associates provides expert guidance on ITC reversal and compliance. Contact us today.
Contact us:
- Email: office@anujdesaiassociates.com
- Phone: 9619456656
- Website: https://anujdesaiassociates.com
- LinkedIn: linkedin.com/in/ca-anuj-desai-122547230