Section 17(5)(h): Lost, Stolen, Destroyed, Written Off or Given Away

Section 17 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

One clause, six situations, and the one that costs businesses most is not a theft or a fire. It is the annual inventory write-off.

Credit is blocked on "goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples." The reversal is of the credit on the inputs contained in those goods, not of tax on the goods themselves — so a finished product written off requires reversal of the credit on the raw materials and packaging inside it. Normal process loss inherent in manufacturing is not within the clause, because nothing has been lost, stolen, destroyed or written off — it has been consumed.

The six situations

Lost. Physical loss — in transit, in storage, in handling.

Stolen. Theft, pilferage, shrinkage.

Destroyed. Fire, flood, accident, deliberate destruction of expired or defective stock.

Written off. The accounting event. Obsolete inventory, expired stock, slow-moving provisions taken to full write-off.

Disposed of by way of gift. Goods given away without consideration.

Free samples. Goods distributed to promote sales.

The first four are involuntary or accounting events; the last two are commercial decisions. All six produce the same result.

What exactly is reversed

The clause blocks credit "in respect of" the goods. For traded goods that is straightforward — the credit taken on purchasing them.

For manufactured goods it is less obvious, because no credit was ever taken on the finished product. The correct reversal is of the credit on the inputs and input services contained in the goods written off — raw materials, packaging, consumables, and the input services embedded in them.

That requires a bill of materials or a standard cost build-up. A percentage estimate will not survive scrutiny, and an over-reversal is as much an error as an under-reversal.

Capital goods destroyed or written off are dealt with differently. Rule 44 and s.18(6) govern disposal; a capital asset scrapped mid-life carries the pro-rata reversal rather than a clause (h) reversal of the full credit. Selling a capital good →

Normal process loss

This is the most valuable distinction in the clause.

In any manufacturing process a proportion of input is lost — evaporation, shrinkage, trimming, burning, moisture loss, invisible waste. Those inputs have been used in the manufacture of the output. They have not been lost, stolen, destroyed or written off in the sense the clause contemplates.

The settled position, carried over from central excise jurisprudence, is that credit on inputs contained in normal process loss is not required to be reversed, provided the loss is:

• inherent in the process;
• within normal industry or technical norms; and
• evidenced by input-output records.

Abnormal loss — a batch spoiled by a machine failure, material destroyed by mishandling, loss well beyond normal norms — is a different matter, and clause (h) applies.

The practical requirement is therefore a documented normal loss percentage per process, supported by technical data or industry norms, and an input-output reconciliation that shows actual loss against it.

Write-offs: the accounting trigger

"Written off" is the only limb that turns on an accounting entry rather than a physical event.

Two consequences:

A provision is not a write-off. Goods carried at a reduced value under a provision for slow-moving or obsolete stock have not been written off. The clause bites when the value is written down to nil and the goods are removed from inventory.

The reversal follows the write-off, not the disposal. Stock written off in March and physically scrapped in July requires the reversal in March.

Where written-off goods are later sold as scrap, the sale is a taxable supply on which output tax is payable — and the credit already reversed is not restored. That is a real double cost, and it is a reason to sell obsolete stock rather than write it off where a market exists.

What is outside clause (h)

Buy-one-get-one and combo packs. Nothing is given away — the bundle is sold for a single price. Circular No. 92/11/2019-GST confirms full credit. Free samples and promotional goods →

Extra grammage. Same reasoning.

Goods replaced under warranty. Circular No. 195/07/2023-GST clarified that where a manufacturer replaces parts or goods under warranty without separate consideration, no reversal of credit is required, because the warranty value was included in the original supply.

Discounts. A price reduction is not a disposal of goods.

Goods returned by a customer. A sales return handled by a credit note under s.34 is not a loss.

Normal process loss, as above.

Key takeaways

• Clause (h) blocks credit on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
• For manufactured goods, reverse the credit on the inputs contained in them, using a bill of materials.
• Normal process loss is outside the clause; abnormal loss is within it.
• A provision is not a write-off — the trigger is removal from inventory at nil value.
• Scrap sale after write-off attracts output tax with no restoration of credit.
• BOGO, extra grammage and warranty replacements are outside the clause.

Read next

• Free Samples, Buy-One-Get-One and Promotional Goods
• Selling a Capital Good: Section 18(6) and Rule 44(6)
• Section 17(5)(fa): CSR Expenditure
• Blocked ITC Under Section 17(5)

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Blocked Credit under GST (November 2025).