The Authority for Advance Rulings, Gujarat in the case of M/s. INOX AIR PRODUCTS P LTD. vide Case No.- GUJ/GAAR/R/2025/10 (In Application No. Advance Ruling/SGST&CGST/2024/AR/11) dated 25.03.2025, has addressed the GST implications on liquid industrial gases lost in transit, with particular focus on the taxability of transit losses and availability of Input Tax Credit (ITC) under Section 17(5)(h) of the CGST Act. The AAR has ruled that losses due to inherent nature or unavoidable circumstances do not amount to supply and therefore GST is not leviable.
Facts of the Case: In this case, the Applicant manufactures and supplies liquid gases like oxygen, nitrogen, and argon in cryogenic vacuum-insulated tanks. Due to the physical nature of these gases a portion naturally evaporates during transportation i.e. loss in transit. Goods are initially dispatched under delivery challan in terms of Rule 55 of CGST Rules, and the tax invoice is issued only for the quantity actually received by the customer. However, the applicant was discharging GST on the lost quantity and now seeks clarity on GST taxability on goods lost in transit.
Issue: Whether GST is payable on goods lost in transit. If GST is payable, what should be the value of supply for the purpose of payment of GST. Further, If GST is not payable, whether the applicant is required to reverse the ITC in terms of Section 17(5)(h) of the CGST Act, 2017.
AAR’s Rulings: The AAR observed and ruled as under:
The AAR stated that the evaporation/loss happens during transit, i.e., before the place and time of supply as defined under GST. As the lost goods are not received by the customer, there is no transfer of possession, and hence, no supply. Therefore, GST is not payable on the quantity of goods lost in transit due to evaporation.
Further, the AAR stated that credit is not a vested right at the time of procurement. It becomes eligible only upon fulfillment of conditions under Section 16, including actual use in taxable outward supplies. Since no taxable supply takes place in respect of goods lost in transit, the input credit on such goods becomes inadmissible.
Despite GST not being applicable on the lost goods, the AAR ruled that the applicant is required to reverse the ITC availed on inputs used in the goods lost during transit. This decision is based on Section 17(5)(h) of the CGST Act, 2017, which restricts ITC on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
