Hon. Madras High Court in the case of M/s.ARS Steels & Alloy International Pvt. Ltd vs. State Tax Officer - Case No. WP.2885/2020 ; Order Dated 24th June 2021 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).

M/s. ARS Steels & Alloy International Pvt. Ltd. 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 which relates to goods lost, stolen, destroyed, written off or disposed by way of gift or free samples.

The order stated 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.’

In view of the above and other details mentioned in the aforesaid order, it was held that No Reversal of ITC should be done in Respect of Inherent Loss of Inputs During a Manufacturing Process.

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