ITC Reversal | AAAR Blocks Credit on Fire-Destroyed Goods

Case Details: Geekay Wires Ltd., In re - [2025] 173 taxmann.com 958 (AAAR-TELANGANA)

Judiciary and Counsel Details

• Sandeep Prakash & S.A.M. Rizvi, Member

Facts of the Case

The appellant, a registered manufacturer, had availed input tax credit (ITC) on inputs used in the manufacture of finished goods, specifically steel nails. These finished goods were subsequently destroyed in a fire accident. Following this incident, the jurisdictional authority questioned the eligibility of ITC claimed on the inputs that were consumed in the production of such destroyed finished goods.

The assessee submitted that the inputs were not themselves lost or destroyed, but were used in the manufacturing process prior to the incident, and therefore ITC should not be denied. The dispute was initially raised before the Authority for Advance Ruling (AAR), which ruled against the appellant. Aggrieved, the appellant, preferred an appeal before the Telangana Appellate Authority for Advance Ruling (AAAR) seeking reversal of the AAR’s decision and reasserting the admissibility of ITC.

AAAR Held

The Telangana AAAR held that input tax credit on inputs used in the manufacture of finished goods that were subsequently destroyed by fire is inadmissible under Section 17(5)(h) of the CGST Act. The Authority observed that the legislative intent behind Section 17(5)(h) is clear, as it explicitly blocks ITC in respect of goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples. It was emphasized that the provision makes no distinction between the destruction of inputs themselves or destruction of goods in which such inputs were used. Accordingly, once the finished goods—into which the inputs were integrated—are destroyed, the benefit of ITC on those inputs stands defeated.

List of Cases Reviewed

• General Manager Ordnance Factory Bhandara, In re [2019] 106 taxmann.com 246/26 GSTL 423 (AAR-MAHARASHTRA) (para 14) affirmed

List of Cases Referred to

• General Manager Ordnance Factory Bhandara, In re [2019] 106 taxmann.com 246/26 GSTL 423 (AAR – MAHARASHTRA) (para 9 and 13.1)
• Ashok Lanka v. Rishi Dixit (2005) 5 SCC 589 (para 11)
• UCO Bank v. Rajendralal (2008) 5 SCC 257 (para 11).