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M/s. Saradhambika Paper & Board Mills Private Limited, Rep. by it s Director A. Sudha v/s The State Tax Officer, Assessment Circle, Gobichettypalayam & Another

    W.P. Nos. 590, 595, 593, 594, 596, 591, 7663, 7668, 7670, 7664 & 7667 of 2021 & WMP. Nos. 657, 8187, 8183, 8185, 8189 & 8191 of 2021

    Decided On, 30 June 2021

    At, High Court of Judicature at Madras


    For the Petitioner: B. Sivaraman, Adithya Reddy, Advocates. For the Respondents: TNC Kaushik, Government Advocate.

Judgment Text

(Prayer: Writ Petition filed under Article 226 of the Constitution of India praying to issue Writ of certiorari call for the records on the file if first respondent herein quash the impugned order of the re-assessment passed by the first respondent in TN No.33062962390/ 2011- 12 dated 04.03.2020 as ex- facie illegal erroneous without jurisdiction and violation of principle of natural justice.)

Common Order

1. The challenge in these matters is to orders of assessment passed under the provisions of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) for the periods 2008-09 to 2012-13 dated 09.02.2021 and 2011-12 to 2016-17 dated 04.03.2020.

2. The only issue that arises relates to the reversal of input tax credit (ITC) in terms of Section 19(9) sub-clause (iii) dealing with inputs damaged in transit or destroyed at some intermediary stage of manufacture. I have had occasion to deal with this very issue in the context of the Tamil Nadu General Sales Tax Act, 1959 and by order dated 24.06.2021 in ARS Steels & Alloy International Pvt . Ltd. Vs. The State Tax Officer (W.P.No.2885 of 2020), have held as follows:


6. The petitioners 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.

7. As regards the Legislative history of this provision, the erstwhile Tamil Nadu Value Added Tax Act, 2006 (in short 'TNVAT Act') 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.

8. The provisions of Section 19, as relevant for the issue dealt with in these matters, are extracted below:

19. Input tax credit.-

(1) There shall be input tax credit of the amount of tax paid Omitted [or Payable] under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule:

Provided that the registered dealer, who claims input tax credit, shall establish that the tax due On purchase of goods has actually been paid in the manner prescribed by the registered dealer who sold such goods and that the goods have actually been delivered Provided further that the tax deferred under section 32shall be deemed to have been paid under this Act for the purpose of this sub-section............

(8) No input tax credit shall be allowed to any registered dealer in respect of any goods purchased by him for sale but given away by him by way of free sample or gift or goods consumed for personal use.

(9) No input tax credit shall be available to a registered dealer for tax paid Omitted [or Payable] at the time of purchase of goods, if such-

(i) goods are not sold because of any theft, loss or destruction, for any reason, including natural calamity. If a dealer has already availed input tax credit against purchase of such goods, there shall be reversal of tax credit; or W.P. Nos.2885 of 2020 etc. batch

(ii) inputs destroyed in fire accident or lost while in storage even before usein the manufacture of final products; or

(iii) inputs damaged in transit or destroyed at some intermediary stage of manufacture.

9. The prescription in Section 19 is echoed in the provisions of Section 17 of the GST Act. Section 17 (1) to (4) set out the entitlement of the assessee to ITC. Sub-section (5) and its sub-clauses provide for situations where ITC claimed shall be restricted and read as follows:

17. Apportionment of credit and blocked credits.

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—


(c) works contract services when supplied for construction of an immovable property(other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation.–– For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

(e) goods or services or both on which tax has been paid under section 10;

(f) goods or services or both received by a non-resident taxable person except on goods imported by him;

(g) goods or services or both used for personal consumption;

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

10. The impugned assessment orders reject a portion of ITC claimed, invoking the provisions of clause (h) extracted above. This relates to goods lost, stolen W.P. Nos.2885 of 2020 etc. batch destroyed, written off or disposed by way of gift or free samples. In my considered view, the loss that is occasioned by the process of manufacture cannot be equated to any of the instances set out in clause (h) above.

11. The situations as set out above in clause (h) indicate loss of inputs that are quantifiable, and involve external factors or compulsions. A loss that is occasioned by consumption in the process of manufacture is one which is inherent to the process of manufacture itself.

12. In the case of Rupa & Co. Ltd. V. Cestat, Chennai (2015 (324) ELT 295),a Division Bench of this 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.

13. In that case, a certain amount of input had been utilised by the assessee, whereas the input in the finished product was marginally less. The department proceeded to reverse the cenvat credit on the difference between the original quantity of input and the input in the finished product.

14. The Bench, noticing at paragraph 13 that some amount of consumption of the input was inevitable in the manufacturing process, held that cenvat credit should be granted on the original amount of input used notwithstanding that the entire amount of input would not figure in the finished product. They state at paragraph 13 as follows:

13. To say that what is contained in finished product is only a quantity of all the inputs of the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. 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.'

15. In the light of the discussion as above, I am of the view 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 sit

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uations adumbrated under Section 17(5)(h). 16. The impugned orders to the above extent are set aside. Writ Petitions in W.P.Nos.2888, 2890 and 3936 of 2020 are partly allowed and W.P.Nos.2885, 3930and 3933 of 2020 are allowed in full. No costs. Connected Miscellaneous Petitions are closed. 3. The only difference between the matters covered by the above order and the present matters would be that the impugned orders in these matters are passed under the provisions of the TNVAT Act. The applicable provisions, Section 17(5)(h) of the TNGST Act and Section 19(9)(iii) of the TNVAT Act are in pari materia. Hence, my reasoning and conclusion in the aforesaid matter would apply a fortiori in these matters as well. 4. I thus reiterate my conclusion in order dated 24.06.2021, set aside the impugned orders and allow all writ petitions. Connected miscellaneous petitions are closed. No costs.