Do we need to proportionately reverse the ITC taken on the basis of supplier's invoice if there is tiny shortage at the time of receiving goods. Eg. Weight at supplier's weighbridge : 25.240 MT Invoiced quantity : 25.240 MT Weight at recipient's weighbridge : 25.200 MT Shortage : 0.040 MT
We are booking quantity in stock as per supplier's invoice only, and not as per our weighbridge. We weigh the truck only to roughly tally it's weight with the supplier's weight and to see if there is not a bigger shortage (in tonnes!) Only in rare cases, the received weight is equal or more than invoiced quantity. The small variations mostly are due to difference in calibrations of weighbridges.
I recall, that in CENVAT regime, we were supposed to reverse credits pro-rata even for small shortages. Kindly enlighten us regarding its treatment in GST rules.
10 July 2024
Under GST rules, the treatment of Input Tax Credit (ITC) in case of shortages or discrepancies between the supplier's invoice quantity and the actual quantity received is governed by specific provisions. Here’s how it generally works:
### GST Treatment for Shortages:
1. **Proportionate Reversal of ITC**: - **General Principle**: As per GST law, if there is a shortage in the quantity received compared to the invoiced quantity, the recipient is required to reverse the proportionate ITC attributable to the shortage. - **Calculation**: The amount of ITC to be reversed is proportional to the shortage. This is typically calculated based on the ratio of the shortage to the invoiced quantity.
2. **Documentation and Compliance**: - **Invoices**: The ITC is claimed based on the supplier's invoice, which specifies the quantity supplied. If there is a shortage detected upon receipt, the recipient should adjust the ITC accordingly. - **Credit Note**: If the supplier issues a credit note for the shortage, the recipient adjusts the ITC accordingly. The credit note should be issued within the time frame specified under GST rules to be eligible for such adjustments.
3. **Exceptions and Tolerances**: - **Small Variations**: GST rules do not specify a de minimis threshold explicitly for shortages. However, minor discrepancies due to calibration differences between weighbridges may be considered within acceptable limits. - **Documentation**: It's crucial to maintain proper documentation, including weighbridge records, supplier invoices, and any credit notes issued, to support ITC claims and reversals during GST audits.
### Practical Application:
- **Example**: In your case, where there is a shortage of 0.040 MT (metric tonnes), you would proportionately reverse the ITC claimed on the invoice corresponding to this quantity shortage. - **Procedure**: Adjust the ITC based on the actual quantity received (25.200 MT) compared to the invoiced quantity (25.240 MT). The proportionate amount of ITC corresponding to the shortage (0.040 MT) should be reversed.
### Conclusion:
While GST rules do not provide specific thresholds for de minimis shortages, the principle of proportionate reversal of ITC applies when there is a shortage compared to the invoiced quantity. It’s important to maintain accuracy in recording quantities and to promptly adjust ITC based on actual receipts and any credit notes issued by the supplier.
For precise compliance with GST regulations and to ensure proper handling of ITC adjustments, consulting with a GST expert or tax advisor is recommended, especially if your business deals with frequent shortages or discrepancies in quantities received. They can provide tailored advice based on the specific circumstances of your transactions and help maintain compliance with GST laws.
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