Input tax credit on manufacturing loss cannot be reversed where the loss is intrinsic to the production process.

Input tax credit cannot be reversed for loss of inputs that is intrinsic to the manufacturing process, because the statutory restriction on goods lost, stolen, destroyed, written off or given away applies to identifiable losses typically caused by external factors. Loss arising from consumption during manufacture stands on a different footing and is not the kind of loss covered by the provision. Treating the TNVAT restriction as in pari materia with the GST provision, the court applied the same construction and held that reversal of credit for manufacturing loss was unwarranted; the assessment orders were set aside to that extent in favour of the assessee.

---

---

Issues: Whether input tax credit could be reversed under Section 19(9)(iii) of the Tamil Nadu Value Added Tax Act, 2006 for loss of inputs that occurs as an inherent part of the manufacturing process.

Analysis: The provision denying credit applies to goods or inputs that are lost, stolen, destroyed, written off, or given away, and is directed to losses that are identifiable and ordinarily caused by external factors or compulsions. Loss of input arising from consumption in the course of manufacture stands on a different footing, because such loss is intrinsic to the process itself and not a loss of the kind contemplated by the statutory restriction. The provision in the TNVAT Act is in pari materia with Section 17(5)(h) of the GST regime, and the same construction applies. On that basis, reversal of credit for manufacturing loss was held to be unwarranted.

Conclusion: The credit reversal was held to be invalid and the impugned assessment orders were set aside to that extent, in favour of the assessee.

---