Loss or damage to goods sent for job work creates unique GST implications. If the goods cannot be returned within the time limit due to loss or damage, the deemed supply provisions apply.
This article explains the consequences and compliance steps.
Deemed Supply on Loss or Damage
If inputs or capital goods sent for job work are lost or damaged and cannot be returned within the prescribed time limit, they are deemed to have been supplied by the principal to the job worker on the date they were sent.
GST Liability
The principal must:
- Pay GST on the value of the lost or damaged goods.
- Issue a tax invoice for the deemed supply.
- Pay interest at 18% from the original dispatch date.
ITC Implications
- If the principal has claimed ITC: The ITC is not reversed, but the principal must pay GST on the deemed supply.
- If the job worker compensates: The compensation is treated as consideration for the supply, and GST applies on the compensation amount.
Insurance Proceeds
If the principal receives insurance proceeds for the lost goods, the GST treatment depends on whether the insurance is a supply of services. Generally, insurance proceeds are not subject to GST unless they represent compensation for a taxable supply.
Practical Steps
- Record all instances of loss or damage.
- Pay GST on the deemed supply.
- Claim insurance where available.
- Maintain documentation for audit purposes.
Conclusion
Loss or damage to goods sent for job work triggers a deemed supply with GST liability. Businesses must account for this in their compliance and insurance planning.
At Anuj Desai & Associates, we provide expert advisory services on GST for job work loss and damage. Our team can help you navigate the tax implications.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.