No reversal of ITC in cases of input loss in the course of manufacturing process- Madras High Court rules
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Case Details: |
ARS Steel & Alloys International Pvt. Ltd. vs. The State Tax Officer, inspection, intelligence |
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Appeal No.: |
W.P. Nos. 2885, 2888, 2890, 3930, 3936 and 3933 & WMP Nos. 3341, 3345, 3336, 4664, 4656 and 4661 of 2020 |
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Date of order: |
24-06-2021 |
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Order Pronounced by: |
Madras High Court |
Brief Facts:
- The petitioners are engaged in the manufacture of Billets and Ingots. MS scrap is an input in the manufacture of MS Billets and the latter, in turn, constitutes an input for manufacture of TMT/CTD Bars.
- There is a loss of a small portion of the inputs, inherent to the manufacturing process.
- The impugned orders seek to reverse a portion of the ITC claimed by the petitioners, proportionate to the loss of the input, referring to the provisions of Section 17(5)(h) of the CGST Act.
- Thus, the impugned order is confined to a decision on the legal issue as to whether a reversal of ITC is required in relation to loss arising from manufacturing process.
Submission by the assessee:
- Section 17(5) of the CGST Act restricts the availability of ITC and read as follows:
“Section 17: Apportionment of credit and blocked credits
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”
- The impugned assessment orders reject a portion of ITC claimed, invoking the provisions of clause (h) as above which relates to goods lost, stole, destroyed, written off or disposed by way of gift or free samples. In our view, the loss that is occasioned by the process of manufacture can not be equated to any of the instances set out in clause (h) above.
- The situations as set out in clause (h) indicate loss of inputs that are quantifiable, and involve external factors or compulsions. A loss that is occasioned by consumption in the process of manufacture is one which is inherent to the process of manufacture itself.
- In the case of Rupa & Co. Ltd. vs. CESTAT, Chennai (2015 (324) ELT 295), a Division Bench of this Court decided a question of law in regard to the entitlement of CENVAT credit involving the measure of inputs used in the manufacturing process, in terms of the provisions of Section 9A and 2(g) of the CENVAT Credit Rules, 2002. In this case, it was held that some amount of consumption of the input was inevitable in the manufacturing process, held that CENVAT credit should be granted on the original amount of input used notwithstanding that the entire amount of input would not figure in the finished product.
High Court Verdict:
Reversal of ITC involving Section 17(5)(h) by the revenue, in the cases of loss by consumption of input which is inherent to manufacturing loss is misconceived, as such loss is not covered by the situations given under section 17(5)(h).
Read the judgement at the following link: www.mhc.tn.gov.in/judis/index.php/casestatus/viewpdf/588860
