In a recent decision, the 1st Section of the STJ reaffirmed its understanding that the acquisition of intermediate products, including those that are consumed gradually in the production process, generate the right to ICMS credit.
This is a relevant precedent for taxpayers, because State Tax Authorities do not allow taxpayers to claim tax credits when such products are not consumed immediately in the production process.
An example of this is Normative Decision CAT No. 1/2001, issued by the São Paulo State Finance Department and well-known among taxpayers in São Paulo. This rule provides, among other things, the São Paulo State Tax Authority’s understanding of the concept of non-cumulative ICMS (Tax on Goods and Services) and defines the situations in which inputs (raw materials, intermediate products, packaging materials) used in the production process generate ICMS credits.
One of the major controversies between taxpayers and the tax authorities concerns the ICMS credit on intermediate products used in the production chain. For the tax authorities, ICMS credits are only generated by intermediate products consumed immediately and entirely in the production process, or used to integrate the product subject to the industrialization activity.
The STJ, however, analyzing the case of an agro-industry, decided that some intermediate products consumed gradually, such as tires and inner tubes, cutting materials, electrodes, scraper blades, oils and greases, also generate tax credits.
In our understanding, the STJ acted correctly and upheld the principle of non-cumulative ICMS, since such inputs, in addition to being necessary for the regular development of the taxpayer’s activity, represent a considerable expense throughout the production chain.
It should be noted, however, that state tax authorities disagree with the above position, and the Superior Court of Justice’s decision is not binding on state agencies. In other words, taxpayers who claim ICMS tax credits in these situations risk being fined by the tax authorities.
Therefore, the best course of action in these cases is to seek a ruling from the Judiciary that allows the taxpayer to take advantage of ICMS credits also on intermediate products that gradually deteriorate during the industrialization process.