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The Petitioners, engaged in the business of manufacture of MS Billets in Ingots had been subjected to assessment orders, whereby the Revenue had sought to reverse a portion of the ITC claimed, proportionate to the loss of the input, referring to the provisions of Section 17(5)(h) of the CGST Act. Aggrieved, the Petitioner had preferred a Writ before the Madras HC challenging the assessment order.
The HC observed that Section 17(5)(h) relates to goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. The loss that is occasioned by the process of manufacture cannot be equated to any of the instances set out in clause (h) of Section 17(5). It was further observed that the situations u/s. 17(5)(h) of the CGST Act 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 view of the above observations, the Madras HC 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 the CGST Act.
ARS Steels and Alloy International Private Limited [2021-TIOL-1393-HC-MAD-GST]
The issue relating to availement of credit in respect of inputs lost during manufacturing process persisted even under the erstwhile VAT and excise laws. The New Delhi Tribunal in the case of Cadbury India Limited [2015-TIOL-1407-CESTAT-DEL] had held that in case of inputs lost in work in process, the assessee is entitled to take CENVAT Credit. The instant judgement of the Madras HC will be a landmark under the GST regime as it brings a huge relief to the manufacturers.
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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