The Madras High Court held that the Input Tax Credit (ITC) cannot be reversed in Respect of Loss of Inputs During a Manufacturing Process.
The petitioner, M/s.R.K.Ganapathy Chettiar raised the issue relating to reversal of Input Tax Credit (ITC) on invisible loss, in terms of Section 19(9)(iii) of the Tamil Nadu Value Added Tax Act, 2006 occasioned during the process of manufacture of Ghee.
Mr.R.L.Ramani, Senior Counsel for the petitioner relied on the Madras High Court decision in the case of ARS Steels & Alloy International Pvt. Ltd. Vs State Tax Officer wherein it was held that 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.’ 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).
The single-judge bench of Justice Anitha Sumanth in the line of the ARS Steels & Alloy International Pvt. Ltd. Vs State Tax Officer held that the order has been passed in the context of TNVAT and would be applicable to the facts and legal position in this case as well. The sole distinction is that the commodity, in that case, was steel whereas the product in the present case is Ghee and this difference is not material.
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