Maintain the production account as well as stock records
CGST Rule 56(12) requires every registered person manufacturing goods to maintain monthly production accounts showing quantitative details of raw materials or services used in manufacture and of goods manufactured, including waste and by-products. A sales register or closing-stock certificate alone does not demonstrate the monthly input-to-output relationship. ICAI April 2026 statutory compilation: CGST Rule 56(12).
Use meaningful production units and source evidence
Link material issues, returns, production reports, work-in-progress movements and finished-goods receipts to the month. Preserve the relevant units and conversion assumptions. Machine-hours or other meaningful service measures can support quantified services where appropriate; the rule does not prescribe one universal measure, yield percentage or bill of materials.
Explain the difference rather than forcing the yield
Maintain a transparent reconciliation for processing loss, recoverable scrap, by-products and unfinished production. Distinguish a supported process characteristic from an unexplained variance. Mixed products and changes in moisture or measurement bases can make simple mass comparisons misleading. Do not silently invent output or delete waste to obtain a perfect percentage.
Keep recordkeeping separate from liability conclusions
A waste entry does not itself determine GST on its sale, an ITC reversal, valuation or accounting cost allocation. Assess those under the applicable provisions and facts. Electronic authentication, correction history, access and preservation follow the other applicable record rules. All examples below are manufacturing-control models with their measurement assumptions stated; their yield rates and variance limits are not legal tolerances.
Applicable primary references
ICAI April 2026 statutory compilation: CGST Rule 56(12)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Simple mass reconciliation
Assume comparable dry-weight inputs of 1,000 kg yield 900 kg finished goods, 60 kg by-product and 40 kg process loss. The 1,000 kg bridge balances; finished-product yield is 90%. Recording only the 900 kg conceals 100 kg requiring classification.
Illustrative example 2: Net material issues
A department receives 800 kg and returns 50 kg unused. Net issued quantity is 750 kg. Recording gross issues as consumption overstates the input-use model by 50 kg; verify actual WIP and other movements.
Illustrative example 3: Work-in-progress bridge
Assume comparable input-equivalent quantities: opening WIP 100 units plus current input 600, less closing WIP 150 and supported loss 20. Completed output is 530 units. The common input-equivalent basis is a model assumption, not permission to add incompatible units.
Illustrative example 4: Scrap recovery
A batch uses 500 kg and reports 450 kg main output, 35 kg recoverable scrap and 15 kg loss. Total accounted quantity is 500 kg. Recoverable scrap is 7% of input; its later tax treatment is separate.
Illustrative example 5: Service-use allocation
An evidenced manufacturing service covers 120 machine-hours, allocated 75 hours to product A and 45 to B. The respective shares are 62.5% and 37.5%. These are actual-model allocations, not prescribed GST percentages.
Illustrative example 6: Unexplained variance
Measured comparable input is 2,000 kg. Recorded main product 1,800 kg, by-product 100 kg and supported loss 60 kg account for 1,960 kg. Investigate 40 kg, equal to 2% of input, rather than assigning it automatically to allowable waste.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify manufacturers | Registered-person and activity scope. |
| 2 | Set monthly cut-off | Production dates and period boundaries. |
| 3 | Map units | Item descriptions and conversion evidence. |
| 4 | Reconcile raw-material issues | Receipts, returns and use. |
| 5 | Quantify services | Appropriate work evidence. |
| 6 | Reconcile WIP | Opening and closing measurements. |
| 7 | Record main output | Finished-production reports. |
| 8 | Record waste and by-products | Separate quantities and disposition. |
| 9 | Investigate variance | Supported explanations and corrections. |
| 10 | Preserve the account | Source documents, authentication and access. |
Sixteen practitioner FAQs
1. Who must maintain this account?
Every registered person manufacturing goods under Rule 56(12).
2. What is its frequency?
Monthly.
3. Does a closing stock count replace it?
No. Production use and output need their own bridge.
4. Are raw materials covered?
Yes, quantitative details of materials used are specified.
5. Are manufacturing services mentioned?
Yes. Use a meaningful supported quantitative measure.
6. Must finished output be recorded?
Yes, including waste and by-products.
7. Is one statutory yield percentage supplied?
No universal yield is prescribed here.
8. Can kilograms and unrelated units simply be added?
No. Reconcile meaningful compatible measures.
9. Why record unused material returns?
Gross issues may otherwise overstate use.
10. Can WIP explain a monthly difference?
Yes, where measured and supported on an appropriate basis.
11. Are by-products the same as unexplained loss?
No. Identify the actual output and process facts.
12. Does a waste entry itself settle ITC reversal?
No. Review substantive credit rules separately.
13. Does the scrap percentage determine a tax rate?
No. It is a quantity-control result.
14. Can all unexplained variances be labelled normal loss?
No. Investigate and preserve evidence.
15. Does the rule prescribe one service unit?
No universal machine-hour or other measure is asserted.
16. What makes the production account reviewable?
Monthly source-linked quantities, explained conversions and resolved differences.
Conclusion
Reconcile monthly manufacturing inputs to finished output, waste and by-products. A stock balance alone does not replace the production account under Rule 56(12).