2021 (8) TMI 595 - HC - VAT and Sales Tax

Court clarifies ITC reversal on manufacturing losses, emphasizes factual evidence

M/s. R.K. Ganapathy Chettiar Versus The Assistant Commissioner (ST)

The Court set aside the orders for Input Tax Credit (ITC) reversal on manufacturing losses of Ghee, emphasizing the need for factual evidence and ... Reversal of Input Tax Credit - invisible loss occasioned during the process of manufacture of Ghee - Section 19(9)(iii) of the Tamil Nadu Value Added Tax Act, 2006 - HELD THAT:- The issue is decided in the case of M/S. SARADHAMBIKA PAPER AND BOARD MILLS PRIVATE LIMITED VERSUS THE STATE TAX OFFICER GOBICHETTYPALAYAM, THE APPELLATE DEPUTY COMMISSIONER (ST) [2021 (7) TMI 341 - MADRAS HIGH COURT] where it was held that Issue decided in the case of M/S. ARS STEELS & ALLOY INTERNATIONAL PVT. LTD. VERSUS THE STATE TAX OFFICER, GROUP – I, INSPECTION, INTELLIGENCE – I, CHENNAI [2021 (6) TMI 957 - MADRAS HIGH COURT] where it was 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). The above 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. Petition allowed. Issues Involved:Reversal of Input Tax Credit (ITC) on invisible loss during the manufacturing process of Ghee under Section 19(9)(iii) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) and its comparison with relevant provisions of the Goods and Services Tax Act, 2017 (GST Act).Analysis:The judgment addresses the issue of reversal of Input Tax Credit (ITC) on invisible loss occurring during the manufacturing process of Ghee, as per Section 19(9)(iii) of the TNVAT Act. The Court refers to earlier decisions in similar contexts, emphasizing the need for factual evidence and proper appellate procedures in case of stock reconciliation issues. It highlights the importance of establishing the loss as inherent to the manufacturing process for ITC reversal.The judgment delves into the legislative history of ITC provisions, comparing Section 19 of the TNVAT Act with Section 17 of the GST Act. It examines the eligibility criteria for ITC under both Acts and the restrictions imposed on claiming ITC in specific situations. The Court emphasizes the need for a clear distinction between quantifiable losses due to external factors and losses inherent in the manufacturing process itself.Drawing from a previous case involving Cenvat credit entitlement, the Court emphasizes the inevitability of some input consumption during the manufacturing process. It quotes the decision that manufacturing processes inherently result in some loss, which should not impact the ITC claim based on the original amount of input used. The judgment concludes that the reversal of ITC based on manufacturing losses is misconceived under Section 17(5)(h) of the GST Act.Ultimately, the Court sets aside the impugned orders related to ITC reversal on manufacturing losses, allowing the writ petitions partly or in full based on the specific legal issues raised. It clarifies that the judgment applies to the present case involving Ghee manufacturing, despite the commodity difference from the referenced steel case. The Court's decision provides clarity on the interpretation of ITC provisions concerning manufacturing losses and upholds the petitioners' rights in this regard.