GST Type 1:

How to deal with output GST which is mentioned on the invoice?

Since the supply of the damaged goods stands cancelled basis the rejection by consignee. GST liability doesn't arise in this case since the supply was cancelled by way of debit/credit notes between the consignor and consignee.

Therefore, not to be added in loss assessment.

GST Type 2:

How to deal with input GST on purchase bill?

The input GST paid on the purchase bill, if reversed by the insured, will have to be allowed in the loss assessment. This is valid for trading activity.

For manufacturing activity, the input GST paid on the raw material/s used for manufacturing finished goods has to be reversed. If reversal proof is provided, the GST can be allowed in loss assessment.

Reversal proof can be in the form of GSTR 3B reversal entry in ITC table against Section 17 (5) (h) of CGST Act 2017 or by paying voluntarily under challan DRC 03.

The GST should be included in VAR of safe stock irrespective of whether the surveyor has allowed GST in Gross loss or whether the insured has reversed the GST on damaged goods.

The concept:

The value at risk has to be compared with the Sum insured as apple to apple concept.

The worst case scenario is a total loss case when the GST will have to be reversed on the total stock amount and added to arrive at correct VAR which can be compared with the Sum Insured in policy to justify the apple to apple approach.

Mind you, this is irrespective of whether GST is being allowed in the loss assessment or not

Methodology to add GST in Safe stock:

There may be many products having different GST rates in case of safe stock.

Take average GST Percentage as per GSTR 2A for the whole financial year or previous financial year also if required. Add this Percentage to the safe stock value to arrive at the total safe stock to be considered for value at risk.

Gross loss with or without GST + Safe Stock with GST = VAR

The ITC for building is not available at the time of construction/ purchase of building

Therefore, GST component is very much allowed in the loss assessment without any reversal

The Catch 1:

If the insured is involved in the sale/purchase i.e. trading of buildings in which case building is being treated as a stock for the insured then ITC on damaged building has to be reversed in order to be allowed in the loss assessment

The Catch 2:

If the policy is on RIV basis and the insured is not reinstating the building then the GST shall not be allowed in loss assessment as that GST component shall never be paid and reach the government and insured shall have a benefit equal to the amount of GST added in the loss assessment. Therefore, GST component not allowed in such cases