Input tax credit cannot be reversed for inherent manufacturing loss; inevitable process loss is distinct from blocked-credit contingencies.

Input tax credit could not be reversed for unavoidable manufacturing loss of inputs under the provision aimed at goods lost, stolen, destroyed, written off, or given away as gifts or free samples. The court distinguished intrinsic process loss from external contingencies covered by the blocking rule, and treated inevitable consumption loss in manufacture as outside its scope. On that basis, reversal of input tax credit for inherent manufacturing loss was not justified, and the assessment challenge succeeded.

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Issues: Whether input tax credit could be reversed for loss of inputs that occurs inherently during the manufacturing process, by invoking the provision dealing with goods lost, stolen, destroyed, written off, or given away as gift or free sample.

Analysis: The issue was examined by comparing the TNVAT provision governing denial and reversal of input tax credit with the corresponding GST restriction. The loss in question was not an external, quantifiable loss such as theft, destruction, or disposal, but an unavoidable consumption loss intrinsic to manufacture. Such manufacturing loss was treated as distinct from the contingencies covered by the blocking provision. The earlier decision relied on held that the total quantity of inputs used in manufacture cannot be denied credit merely because the finished product contains a lesser quantity by reason of inevitable process loss.

Conclusion: Reversal of input tax credit for inherent manufacturing loss was not justified, and the challenge to the impugned assessment orders succeeded.

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