GST: Cenvat Credit to be allowed on Inputs inherently lost in manufacturing process, rules Madras High Court [Read Judgment]

Cenvat credit - manufacturing process- Madras High Court - taxscan

The Madras High Court ruled that the Cenvat credit under GST should be granted on the inputs inherently lost in the manufacturing process.

The petitioners, M/s.ARS Steels & Alloy International Pvt. Ltd. are engaged in the manufacture of MS 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 GST Act.

Mr.Mudimannan, counsel for the petitioner raised the issue, whether a reversal of Input Tax Credit (ITC) is contemplated in relation to loss arising from manufacturing process.

As regards the Legislative history of this provision, the erstwhile Tamil Nadu Value Added Tax Act, 2006 contained an equivalent provision in Section 19 thereof, which deals with various situations arising from the grant and reversal of ITC. Section 19 (1) grants eligibility to ITC of the amount of tax paid under the TNVAT Act by a registered dealer. It sets out situations where such ITC shall be denied as well.

The single judge bench of Justice Anita Sumanth relied on Rupa & Co. Ltd. V. Cestat, Chennai wherein a Division Bench of Madras High Court decided a question of law in regard to the entitlement to 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.

The 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).

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