Kerala businesses at risk to lose tax credits over goods lost in the floods

NEW DELHI: Businesses that lost merchandise in the floods that ravaged Kerala recently could lose credit for taxes paid on raw materials and capital goods as the finished products are not in the supply chain.

Goods and services tax (GST) officials have started seeking information from businesses and traders in Kerala about merchandise washed away in floods, invoking legal provisions that call for denying credits for taxes paid on raw materials and capital goods when the finished products are destroyed.

Tax officials told Mint that the exercise was only about data gathering for the government to take appropriate decision. However, experts said that, according to law, there is no room for discretion in giving businesses a waiver from reversing the tax rebates they have availed of.

Kerala’s State GST Act says that input tax credit shall not be available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. It does not make any distinction between goods destroyed intentionally and those destroyed in a natural calamity and thus forces officials to seek information on the quantum of loss.

An internal communication of the department reviewed by Mint discussed the steps to be taken by officials under law, how to reach out to businesses and traders seeking information and options for assessees to pay up. The communication issued by deputy commissioner, Mattancherry, Kerala, said further instructions from higher authorities were awaited on the matter.