Input Tax Credit shall be allowable in case of process loss/ Handling loss/ Input loss etc. due to natural circumstances
In the matter of Union of India v. M/s Asahi India Safely Glass Ltd. reported in 2015 (320) E.L.T. 179 (S.C.), the Hon’ble Supreme Court has held that Input Tax Credit shall be allowed in respect of goods lost in production process. The observations of the Apex Court are given here below:
“Manufacture thus involves series of processes. Process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to, manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture.”
Also, in the matter of M/s ARS Steels & Alloy International Pvt. Ltd. vs. State Tax Officer, W.P No. 2885 of 2020 etc., the Madras High Court held that the reversal of ITC involving Section 17(5)(h) by the revenue, 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 CGST Act, 2017
Also, in case of M/s Rupa & Co. Ltd. vs. Custom, Excise & Service Tax Appellate Tribunal, Chennai-6, reported in 2015 (324) E.L.T. 295 (Madras), the High Court has observed in para 13 that “what is contained in finished product is only a quantity of all the inputs of the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. The expression ‘inputs of such finished product’ contained in finished products’ cannot be looked at theoretically with its semantics. It has to be understood in the context of what a manufacturing process is. If there is no dispute about the fact that every manufacturing process would automatically result in some kind of a loss such as evaporation, creation of by-products, etc., the total quantity of inputs that went into the making of the finished product represents the inputs of such products in entirety” and held the manufactured is right in making a claim for CENVAT credit, with reference to the total quantity and the value of the inputs that went into the making of the fabric.
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