Input Tax Credit not to be reversed under Section 17(5)(h) of the CGST Act, 2017 in case of loss of input which is inherent to manufacturing process
Facts: In this case, the Petitioner is engaged in the manufacture of MS Billets and Ingots. MS scrap is an input in the manufacture of MS Billets and in turn MS Billets constitutes as an input for manufacture of TMT/CTD Bars. There is a loss of a small portion of the inputs, inherent to the manufacturing process.
This batch of writ petition has been filed against the assessment order passed by the State Tax Officer (the Respondent) that seeks to reverse a portion of the ITC claimed by the Petitioner, proportionate to the loss of the inputs, referring to the provisions of Section 17(5)(h) of the CGST Act for the periods 2017-18, 2018-19 and 2019-20.
Issue: Whether a reversal of ITC is contemplated in relation to loss arising from manufacturing process?
Held: The Hon'ble Madras High Court held as under-
- Observed that Section 17(5)(h) of the CGST Act indicates 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.
- Relied on the judgment of the Hon’ble Madras High Court in case of Rupa & Co. Ltd. V. CESTAT, Chennai (2015 (324) ELT 295), wherein, the Court noted that some amount of consumption of the inputs was inevitable in the manufacturing process, and held that CENVAT credit should be granted on the original amount of inputs used notwithstanding that the entire amount of inputs would not figure in the finished product.
- Held that the reversal of ITC involving Section 17(5)(h) of the CGST Act by the Revenue Department, in cases of loss by consumption of input which is inherent to manufacturing loss is misconceived, as such loss is not contemplated or covered by the situations adumbrated under Section 17(5)(h) of the CGST Act.
- Set aside the assessment order passed by the Respondent in this case.
Relevant Provisions
Section 17(5)(h) of the CGST Act:
“17. Apportionment of credit and blocked credits.
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (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;”
To read the complete judgment 2021 Taxo.online 700
