ITC on Process Loss | Is the Issue Far from Settled?

  • Blog|News|GST & Customs|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 26 May, 2022

ITC availability on process loss

Rohini Mukherjee – [2022] 138 407 (Article)

While there are numerous grey areas in the availability of credit under GST law, one common area of concern has been credit availability on process loss. Generally, there are certain raw materials which are damaged or become unusable in the process of manufacture, typically known as “process loss”. Some typical examples of such process loss are end cuttings in the textile industry, side cuttings of packaging materials and floor sweepings in food industry.
In this backdrop, the question to ponder is whether credit is available on such raw materials which are damaged or destroyed or which become unusable in the production process and are thereafter either disposed of or destroyed by the taxpayer without any corresponding proceeds.
The entry point for availment of credit under GST law is the use of goods or services in the course or furtherance of business1 and thereafter, all supplies are also required to pass through the litmus test of not falling under any of the restricted categories2.
It is worth noting that “business” under GST law is of wide import including within its ambit any activity, whether or not the same is for a pecuniary benefit. As far as the nexus with business is concerned, it is possible to take a stand that since the raw materials are put to use in manufacture, the same are used in the course or furtherance of the business.
The restricted category which is causing a dilemma in the minds of the tax payers is the restriction vis-à-vis goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples3.
The question is whether the raw materials which are damaged or destroyed or become unusable during the production process and are thereafter disposed of without any corresponding consideration are “goods destroyed or lost”. If the answer is in the affirmative, then the credit is barred under the above restriction.
At first blush, it appears that the legislature intended to deny credit where goods were destroyed, stolen or disposed of irrespective of the manner in which such goods were destroyed, stolen or lost or disposed of. Moreover, it is interesting to note that the barring provision4 starts with a non-obstante clause requiring reversal irrespective of the manner in which such goods were lost, stolen or destroyed.
Click Here To Read The Full Article

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied