Utilization of ICMS Credits on Intermediate Products: Jurisprudence and Impacts on Corporate Tax Management

Lucas Cabral Leal Marques; Bruna Vieira Esteves Dos Santos

DOI: 10.22167/2675-6528-202603166

Article derived from a Course Conclusion Work (TCC), with content based on the student’s original work and adapted to the editorial format of the E&S Magazine with the support of the ResumeAI tool, an artificial intelligence solution developed by Instituto Pecege for textual synthesis and organization.

Summary

The ICMS tax credit regime on intermediate products has gained practical and legal relevance due to the jurisprudential expansion of the functional essentiality criterion and the impacts of its application on corporate tax management. The study analyzed how two industries in the furniture sector located in Rio Grande do Sul applied the understanding of the Superior Court of Justice regarding ICMS credits related to intermediate products, evaluating the conformity of the observed practices with the examined normative and jurisprudential parameters. The investigation was applied in nature and conducted through a multiple case study, with a qualitative and descriptive approach, based on the documentary analysis of fiscal, accounting, and operational information from two medium-sized industries located in Rio Grande do Sul, complemented by the examination of normative, doctrinal, and jurisprudential sources and the development of a checklist of essentiality criteria. The results revealed that recent jurisprudence favored the functional essentiality of the input, allowing the crediting of items consumed or gradually worn out when necessary for the core business activity. However, it was evident that the effectiveness of this regime depended on the companies’ ability to internalize these parameters into uniform classification and documentation criteria. The secure implementation of credit utilization was conditioned less by the existence of legal support and more by overcoming internal filters of economic materiality, classificatory heterogeneity, and insufficient evidence for borderline items, which highlighted the need for consistent fiscal governance.

Keywords: Functional essentiality; Multiple case study; Fiscal governance; Non-cumulative; Furniture sector.

1. Introduction

The Tax on Circulation of Goods and Services (ICMS) holds a central position in the Brazilian tax system, not only due to its collection volume but also because of its impact on productive organization. This centrality stems from the constitutional design of the tax, as the Federal Constitution of 1988 enshrined the principle of non-cumulativeness, determining that the tax should only apply to the value added at each stage of economic circulation, with the aim of preserving tax neutrality and avoiding competitive distortions (Amaro, 2019; Paulsen, 2022).

In this scenario, the definition of which inputs generate credit rights has been the subject of intense debate. Among them, the so-called intermediate goods stand out, understood as goods used in the production process that, although they do not physically integrate the final product, are essential for its obtainment. Tax doctrine recognizes that the correct delimitation of credit on these inputs is decisive for the effectiveness of non-cumulativeness.

The right to credit constitutes a constitutional guarantee of the taxpayer, and cannot be restricted by infra-legal norms, as highlighted by Machado (2020) and Harada (2017). Carrazza (2015) adds that non-cumulativeness is a direct expression of tax neutrality, and must ensure equal treatment for all inputs essential to business activity.

The classical doctrine, through authors such as Ataliba (2006), Carvalho (2018), and Ávila (2006), had already emphasized that the analysis of the incidence matrix rule and constitutional principles, especially those of taxable capacity, essentiality, and neutrality, is indispensable for the correct application of ICMS. Contemporary authors, such as Harada (2017) and Machado (2020), reinforce this understanding by linking non-cumulativeness to coherence between fiscal theory and practice, aiming to avoid competitive distortions and ensure the constitutional purpose of the tax.

From a jurisprudential standpoint, the Superior Court of Justice (STJ), after initial disagreements, consolidated a progressively expansive understanding. The Court began to admit the crediting of ICMS on intermediate products essential to the production process, even if gradually consumed or worn out. This evolution became evident in rulings such as Embargos de Divergência em Agravo em Recurso Especial No. 1.775.781/SP (Brazil, 2023) and Agravo Interno no Recurso Especial No. 2.136.036/RS (Brazil, 2024c), both reaffirming the legitimacy of utilizing credits whenever the essentiality in relation to the company’s core business is proven.

This understanding consolidates an interpretive evolution that dates back to Special Appeal 1.125.133/SP (Brazil, 2010) and Precedent 166 of the STJ (Brazil, 1996b), which recognized the non-existence of a taxable event in internal displacements and affirmed the legal nature of the circulation of goods. Such precedents demonstrate that the STJ has been building a coherent line of interpretation, reinforcing legal certainty and the methodological consistency of this study.

The legally relevant distinction is not established between goods that compose the final product or not, but between items with an essential function in the production process and those of generic support. Intermediate products are goods that, even if gradually consumed or worn out, participate necessarily in obtaining the industrial result. Goods for use and consumption, on the other hand, are linked to the general functioning of the establishment, without a direct and specific functional link to the core activity (Brasil, 2023).

However, the discussion transcends the dogmatic level and has a direct impact on business management, as the correct appropriation of credits can represent significant tax savings and a gain in competitiveness. On the other hand, improper appropriation exposes companies to tax assessments and administrative or judicial litigation. The jurisprudential expansion of the right to credit has not eliminated the practical difficulties of its appropriation, but has shifted the center of the controversy to the demonstration of the functional link between the input and the productive activity, especially in items at the classification boundary.

For this reason, the work assumes academic relevance by contributing to the understanding of the principle of non-cumulativeness and the application of tax rules; social relevance, by fostering legal certainty and competitiveness in the business environment; and practical relevance, by offering instruments for tax analysis and management applicable to the studied reality. Given this context, the objective of this work was to analyze how two industries in the local furniture sector located in Rio Grande do Sul applied, in their fiscal routines, the STJ’s understanding regarding the utilization of ICMS credits on intermediate products, evaluating the conformity of the observed practices with the examined normative and jurisprudential parameters, especially regarding the classification of inputs and the documentary sufficiency to support the crediting.

2. Material and Methods

The research conducted was characterized as applied, developed through a multiple case study. A qualitative and descriptive approach was adopted, with the purpose of analyzing the utilization of credits from the Tax on Circulation of Goods and Services (ICMS) on intermediate products. The focus was on two industries in the furniture sector, located in the State of Rio Grande do Sul and subject to the Real Profit taxation regime, seeking to evaluate the conformity of their fiscal practices with normative and jurisprudential parameters.

The selection of cases was intentional, guided by the availability, consistency, and relevance of the documents necessary for investigating the proposed problem. The participating industries were generically identified as Company A and Company B, in respect to the confidentiality commitment assumed for academic purposes. Any sensitive data were omitted, and the material remained under restricted custody, with exclusive use for the study’s objectives.

The data was obtained through documentary research, structured in three complementary plans. In the normative and doctrinal plan, the Federal Constitution (Brazil, 1988), Complementary Law nº 87/1996 (Brazil, 1996a), related legislation, and specialized literature were examined. This analysis focused on the non-cumulative regime, the distinction between intermediate products and goods for use and consumption, and the criterion of functional essentiality.

From a jurisprudential standpoint, structuring precedents from the Superior Court of Justice (STJ) on the topic were considered, selected for their relevance in consolidating the essentiality criterion. Additionally, a set of judgments from the Court of Justice of the State of Rio Grande do Sul (TJRS), issued between 2023 and 2025, was examined to identify and systematize the legal criteria used in recognizing or denying the right to ICMS tax credit in analogous situations.

On the empirical level, business documents made available by the two industries were analyzed. These documents included input movement spreadsheets, merchandise and production curve spreadsheets, entry details, purchase invoices, ICMS calculation records, Digital Tax Bookkeeping (EFD-ICMS/IPI) files, and related accounting and operational documents. The documentary scope was defined according to the availability, organization, and relevance of the records for verifying the tax treatment of the items.

As an analytical instrument, an essentiality checklist was developed, built from the normative, doctrinal, and jurisprudential parameters identified in the previous stages. This instrument was designed to operationalize the examination of documents, allowing the fiscal treatment adopted to be confronted with the material essentiality criteria. The unit of analysis corresponded to each input, or to homogeneous groups of inputs, whose aptitude to generate credit was examined.

The checklist was structured with verification questions that addressed the item’s participation in a relevant stage of the production process and the commitment to continuity, quality, quantity, or technical sufficiency of production in its absence. The occurrence of consumption, wear, or functional exhaustion, even if gradual, and the existence of documentation capable of demonstrating the functional link between the input and the company’s core activity were also verified.

Additionally, the instrument assessed the compatibility of the tax treatment adopted with the appropriation of credit and the presence of elements indicative of classification as goods for use and consumption by the establishment. The formulation of these questions allowed the legal concept of essentiality to be broken down into operational examination parameters, guiding the subsequent documentary analysis.

The evidentiary function of the documents was defined for each type of record. The acquisition invoices proved the entry and identification of the input. The EFD-ICMS/IPI and the calculation records showed the tax treatment and any credit utilization. The operational and accounting documents, in turn, allowed for the assessment of the item’s concrete function in the production process.

The data analysis was not based on an isolated document, but on the triangulation of convergent sources. This approach allowed for the identification of the entry and description of inputs, tax treatment and credit utilization, and the concrete function of the item in the production process. The checklist application was carried out individually in each case, covering the period from 2023 to 2025 for Company A, and a broader documentary universe for Company B.

The data were interpreted qualitatively, with a comparative emphasis between the two case studies. The purpose of the analysis was to understand how the legal criteria of essentiality were internalized in the companies’ tax routines and to what extent this internalization proved sufficient to safely support the use of ICMS credits on intermediate products.

The comparison between the cases was guided by common observation axes, including the scope of credit utilization, the classificatory uniformity of inputs, the evidentiary sufficiency of documentation, the adherence between fiscal practice and previously defined legal parameters, and the nature of the obstacles identified in each situation. This methodology allowed for a comprehensive and contextualized evaluation of business practices.

3. Results and Discussion

The analysis of the credit regime for the Tax on Circulation of Goods and Services (ICMS) on intermediate products revealed that the central controversy is not restricted to the abstract definition of non-cumulativeness, but to its practical operationalization in corporate fiscal routines. The research findings indicated that recent jurisprudence from the Superior Court of Justice (STJ) and the Court of Justice of the State of Rio Grande do Sul (TJRS) has favored the criterion of the functional essentiality of the input, rejecting the restrictive interpretation based on physical incorporation into the final product. However, the effectiveness of this understanding depends on the companies’ ability to internalize these parameters into uniform classification and documentation criteria, as observed in the studied cases.

Normative and dogmatic premises for the analysis of cases

The ICMS tax credit regime is intrinsically linked to the constitutional principle of non-cumulativeness, as established in art. 155, § 2º, I, of the Federal Constitution (Brazil, 1988). This principle aims to prevent the cascading incidence of the tax and preserve the tax neutrality of productive activity, not constituting an occasional tax benefit, but a structuring mechanism of the tax (Amaro, 2019; Paulsen, 2022). Complementary Law nº 87/1996 (Brazil, 1996a), in its art. 20, regulates the credit for the entry of goods destined for the establishment, while art. 33, I, postpones the credit for goods of use and consumption until January 1, 2033. This postponement creates a border zone that requires distinguishing between intermediate products, with immediate credit, and goods of use and consumption, subject to temporal limitation.

The demarcation between these categories cannot be resolved by merely formal or accounting classifications. Authors such as Ataliba (2006), Ávila (2006), and Carvalho (2018) emphasize that non-cumulativeness must be interpreted in line with the economic and legal function of the tax, ensuring coherence between the constitutional materiality of the ICMS and the concrete dynamics of production. In this sense, the right to credit is not restricted to goods that physically incorporate into the final product, but also includes inputs that reveal a direct functional link with the core activity, provided their use is necessary for the realization of the production process (Harada, 2017; Machado, 2020).

Intermediate Products in the Production Process

The main difficulty in the concrete application of the ICMS credit regime lies in the classification of goods used in the production process. Complementary Law No. 87/1996 (Brazil, 1996a) does not expressly define intermediate products, which historically favored restrictive administrative interpretations and expanded litigation (Leite, 2013; Silva and Feitosa Neto, 2023). Doctrine has consolidated the differentiation between intermediate products, goods for use and consumption, and fixed assets. Intermediate products are inputs that, even if not physically integrated into the final product, are indispensable for its manufacture, are exhausted during industrialization, and functionally integrate the production process (Harada, 2017; Moreira, 2020; Leite, 2013).

In contrast, goods for use and consumption are intended for administrative or operational support, without direct linkage to the core activity, and their credit is deferred (Moreira, 2020; Silva e Feitosa Neto, 2023). Fixed assets, in turn, comprise durable goods intended for the maintenance of the company’s permanent structure and have their own crediting regime (Harada, 2017; Machado, 2020). The identification of intermediate products, therefore, became oriented by functional essentiality, direct participation in the production process, and consumption or wear throughout industrial activity, overcoming the formalism of physical credit (Leite, 2013; Machado, 2020; Paulsen, 2022).

The Case Law of the STJ and the Non-Cumulativeness of ICMS

The STJ’s case law has been fundamental in consolidating a substantive interpretation of ICMS non-cumulativity, moving away from excessively formal interpretations. Previous precedents, such as Precedent 166 (Brazil, 1996b), already indicated that the taxable event for ICMS presupposes legally qualified circulation, not just the physical displacement of goods. This interpretive evolution has allowed the debate on crediting to shift from the criterion of physical incorporation of the asset to its material relevance in the production process, valuing the essentiality of the input in relation to the taxpayer’s economic activity.

This interpretative movement was consolidated in the judgment of EAREsp 1.775.781/SP (Brazil, 2023), in which the First Section of the STJ established that the right to credit is not conditioned on the physical integration of the input into the final product, but on its functional essentiality in relation to the establishment’s core business. The Court reaffirmed that materials used in the production process, even if gradually consumed or worn out, can generate the right to immediate credit, without the temporal restrictions applicable to goods for consumption. This jurisprudential shift directed the analysis to the specific treatment of intermediate products under the ICMS regime.

The STJ’s Understanding of Intermediate Products

The analysis of recent STJ jurisprudence revealed the consolidation of a new interpretative axis for the crediting of ICMS on intermediate products. The Court recognized that Complementary Law No. 87/1996 (Brazil, 1996a) authorizes the use of credits for materials that, although not physically incorporated into the final product, are essential for carrying out the core business activity. This guideline was expressly established in EAREsp 1.775.781/SP (Brazil, 2023), which allowed the crediting of materials consumed or gradually worn out, provided their necessity for the company’s corporate purpose is proven.

From this precedent onwards, the decisive criterion for crediting became the functional essentiality of the item, rather than its mere material incorporation into the final product. The STJ began to prioritize the function concretely performed by the asset in the production chain, examining whether its use is direct and necessary for the development of the taxed economic activity. Periodic replacement, progressive wear, or gradual loss of physical and chemical properties do not alter the nature of an intermediate product, as long as the material is indispensable to the production process.

From this understanding, it follows that the distinction between intermediate product and good for use and consumption cannot be resolved by formal, abstract, or exclusively temporal criteria. EAREsp 1.775.781/SP (Brazil, 2023) rejected the automatic equivalence between materials subject to gradual wear and tear and goods for use and consumption, clarifying that the postponement of credit provided for in art. 33, I, of Law Kandir (Brazil, 1996a) applies only to items effectively classified as goods for use and consumption, and not to materials that functionally integrate the production process. The central point, therefore, lies in verifying whether the item participates, necessarily, in obtaining the economic result intended by the taxpayer.

Another recurring aspect in the STJ’s jurisprudence is the centrality of evidence. The recognition of the right to credit does not occur automatically, requiring concrete demonstration of the functional link between the acquired material and the establishment’s core activity. This demonstration may require technical reexamination or the return of the case files to the origin for the determination of the production process circumstances, as evidenced in AgInt in REsp 2.136.036/RS (Brazil, 2024c). The analysis of the most recent precedents, such as AgInt in AgInt in EREsp 2.054.083/RJ (Brazil, 2024b) and AREsp 2.621.584/RJ (Brazil, 2024a), confirmed the stability of this understanding, reiterating the legitimacy of crediting materials essential to the production process, even if gradually worn out, provided their essentiality is proven.

From this set of precedents, four central jurisprudential criteria were extracted for the classification of intermediate products: (i) the functional essentiality of the good in relation to the core business activity; (ii) the irrelevance of the absence of physical incorporation into the final product; (iii) the admissibility of gradual wear or consumption as compatible with the right to credit; and (iv) the requirement for concrete proof of the link between the item and the production process. These criteria demonstrate that the STJ replaced a rigid classification logic with a material and contextualized analysis, more aligned with the purpose of non-cumulativeness. From the perspective of tax management, this jurisprudential consolidation reinforced the need for technical demonstration of the item’s function in the production process, in addition to its accounting or fiscal description, expanding the legal scope for the utilization of credits, but, at the same time, reinforcing the need for internal classification criteria, documentary support, and evidentiary coherence.

Consolidated contemporary case law

The analysis of the 19 decisions by the TJRS, issued between 2023 and 2025, evidenced the consolidation, at the state level, of the jurisprudential criteria established by the STJ. The Rio Grande do Sul court abandoned abstract classifications based exclusively on physical integration into the final product, in favor of a material analysis of the function performed by the input in the production process. The first decisional pattern identified was the adoption of functional essentiality as a central element, recognizing it when the item is intrinsically and fundamentally necessary for the final product to achieve its quality, quantity, or technical sufficiency. Examples include reagents and laboratory materials essential for quality control in the dairy industry (TJRS, 2025a) and inputs used in furniture manufacturing (TJRS, 2024d).

The second pattern corresponded to overcoming the paradigm of instant consumption. The Rio Grande do Sul jurisprudence rejected the restrictive interpretation that only materials entirely consumed immediately would generate credit. Gradual wear and progressive loss of physical properties through direct contact with the product being manufactured do not alter the intermediate nature of the good. This understanding was applied to authorize the crediting of cutting tools, dies, hammers, and molds in the metallurgical and mining industries, items that, although subject to continued use, are functionally exhausted in the core activity (TJRS, 2023a; TJRS, 2023b).

The third decision-making pattern related to the relevance of sanitary and regulatory requirements. Materials such as cleaning and sterilization products for industrial machinery and inputs for water and effluent treatment assume an intermediate nature when their use arises from regulatory impositions by bodies such as MAPA and ANVISA, legally making the operation of the manufacturing plant unfeasible in their absence (TJRS, 2024a). However, this criterion is strictly limited to the productive core, with credit being denied for items of mere convenience or secondary logistics, such as plastic bags in supermarkets and stretch film for palletizing used only for external transport (TJRS, 2024b; TJRS, 2025c; TJRS, 2025f).

The fourth identified pattern corresponded to the centrality of technical proof. The recognition of credit depends on the concrete demonstration of the functional link between the input and the core activity, often carried out through an expert report prepared by a production engineer (TJRS, 2025a). Recent jurisprudence indicates that the writ of mandamus is inadequate when the complexity of the industrial process requires an expansion of evidence, leading to the dismissal of cases without a resolution of the merits due to the absence of pre-constituted proof of the item’s indispensability (TJRS, 2024c; TJRS, 2025b).

Finally, the examined judgments established a clear boundary regarding the link to the core activity. While the road freight transport sector has the right to credit on fuels, tires, lubricants, and additives such as ARLA 32, as they are vital inputs for the provision of the service itself (TJRS, 2024f), retail trade companies or industries that use their own fleet solely for delivering goods have this right denied (TJRS, 2024e, 2025e). In these cases, transport is qualified as an ancillary activity or logistical support, keeping these items subject to the temporal postponement of 2033, provided for in art. 33, I, of the Kandir Law (Brasil, 1996a).

Together, these decision-making patterns demonstrated that the contemporary jurisprudence of the TJRS consolidated a model of analysis based on the functional essentiality of the input, overcoming the criterion of instantaneous consumption, the relevance of regulatory impositions, and the centrality of technical evidence. At the same time, the judgments preserved clear material limits, rejecting the crediting of items linked to the ancillary activity, secondary logistics, or mere operational convenience. From the perspective of tax management, the analysis indicated that the viability of the credit depends less on the abstract classification of the good and more on the ability to demonstrate, in a technically consistent manner, its direct link with the core activity, as well as to rule out its submission to the postponement provided for in art. 33, I, of Complementary Law No. 87/1996 (Brazil, 1996a).

Managerial implications of the jurisprudential stage

The jurisprudential findings allowed the extraction of relevant guidelines for corporate tax management. The first of these consisted of the need to adopt internal classification criteria capable of accurately distinguishing inputs directly linked to the core business activity from those intended for the ancillary activity, operational support, or mere logistical convenience. The adequate administration of the ICMS credit thus became less dependent on generic classifications and more on technical criteria consistent with the function effectively performed by the asset in the production process.

The second identified guideline corresponded to the need for prior documentary and evidentiary support. The analysis indicated the need to structure documentation capable of demonstrating the functional link between the input and the production, for purposes of inspection, internal review, or eventual judicial discussion, especially through technical reports, descriptive memorials, and records of the manufacturing process. Without this basis, the risk of administrative disallowance and fragility in judicial support of the credit becomes significantly higher.

The third implication identified was of a financial and contingent nature. As the classification of the item as an intermediate product or a good for use and consumption defines the incidence or not of the postponement provided for in art. 33, I, of Law Kandir (Brazil, 1996a), this classification directly impacts cash flow, monthly tax assessment, and the measurement of tax liabilities. Therefore, the need to incorporate credit management into the company’s tax governance was identified, with repercussions on compliance, provisioning, and the utilization of tax opportunities.

Finally, the jurisprudential stage also highlighted the importance of a prior assessment of the appropriate procedural path. In cases where the classification of an input depends on complex technical demonstration, the procedural strategy must consider the sufficiency of the available evidence, under penalty of adopting a measure incompatible with the need for evidentiary proceedings. Thus, the adequate management of ICMS credits on intermediate products requires a combination of consistent technical classification, valid documentation, and an advance assessment of the fiscal risk associated with each category of input.

Operationalization of the essentiality criteria

The jurisprudential systematization carried out in the previous stage showed that the recognition of ICMS credit on intermediate products does not depend on physical integration into the final product, but on the concrete demonstration of the functional essentiality of the input in relation to the core business activity. Based on this finding, an essentiality checklist was developed to guide, in a standardized way, the review of the fiscal, accounting, and operational documents of the selected companies. In the construction of this instrument, each input, or homogeneous group of inputs, whose aptitude to generate ICMS credit could be examined in light of consolidated jurisprudence, was adopted as the unit of analysis.

The checklist was structured based on the following verification questions: (i) does the item participate in a relevant stage of the production process?; (ii) does its absence compromise the continuity, quality, quantity, safety, or technical sufficiency of production?; (iii) is there consumption, wear, or functional exhaustion during the manufacturing activity, even if gradual?; (iv) is there documentation capable of demonstrating the functional link between the input and the company’s core activity?; (v) is the adopted tax treatment compatible with the appropriation of credit?; and (vi) are there any indicative elements, to the contrary, of its classification as a good for use and consumption by the establishment? The formulation of these questions allowed the legal concept of essentiality to be broken down into operational examination parameters, capable of guiding subsequent documentary analysis.

To this end, the evidentiary function of the main documents examined was also defined: the purchase invoices proved the entry and identification of the input; the EFD-ICMS/IPI and the calculation records showed its tax treatment and the eventual credit utilization; and the operational and accounting documents allowed for the assessment of its concrete function in the production process. Thus, the verification of credit eligibility was not based on an isolated document, but on the articulated examination of a convergent set of documents. It was this triangulation, previously organized from the essentiality checklist, that made the next stage of analysis of business practices for ICMS credit utilization methodologically possible.

Contextualization of cases and delimitation of documentary material

In the furniture sector, industrial production usually develops in multiple manufacturing stages, with recurrent use of inputs that are not always physically incorporated into the final product, but which may reveal an indispensable technical function for the core activity. This context makes the distinction, for ICMS purposes, between intermediate products and goods for use and consumption especially relevant. The set of cases analyzed corresponded to two medium-sized companies in the furniture sector, located in the State of Rio Grande do Sul and subject to the Real Profit taxation regime. Due to the confidentiality commitment made for academic purposes, the generic identification of the companies as Company A and Company B was adopted.

The documentary material examined was composed of input movement spreadsheets, ICMS assessment records, Digital Fiscal Record (EFD-ICMS/IPI) files, and related accounting and operational documents, selected according to their availability, consistency, and relevance to the investigated problem. This set allowed for the delimitation, in each case, of the items effectively submitted to analysis and the fiscal treatment attributed to them. With the legal criteria of essentiality systematized and the analysis checklist defined, the individualized examination of cases was carried out, with the objective of verifying the adherence of the observed business practices to the previously delimited normative and jurisprudential parameters.

Application of the essentiality criteria to the cases

Company A

Company A corresponded to a medium-sized industry in the furniture sector, specializing in the serial manufacturing of upholstered furniture and seats with higher added value. Documentary analysis allowed the identification of a production process structured in stages of metallurgy, carpentry, upholstery, and finishing. The examination covered 190 items mapped from the merchandise and production curve spreadsheets, complemented by fiscal records from EFD-ICMS/IPI, in the period from 2023 to 2025. The joint reading of the documents was guided by the essentiality checklist, considering the item’s participation in a relevant stage of the production process, the commitment of production in its absence, consumption or functional wear, and the existence of documentation capable of demonstrating the functional link with the core activity.

The compatibility of the adopted tax treatment and the presence of elements indicative of classification as goods for use and consumption were also observed. The application of these parameters revealed heterogeneous tax treatment among the main input groups of Company A. Industrial welding gases, such as Gás Atal, Argon, and Arcal Speed, were credited, as they directly participated in structural welding and underwent integral and immediate consumption in the manufacturing process, which justified the use of the credit. Cutting and machining tools, such as router bits, HSS drills, and non-through drills, were also credited, as they underwent direct mechanical wear due to friction in machining and presented a clear functional link with the transformation of raw materials, in accordance with the criterion of essentiality.

The HSS, Black Diamond, Black Onix circular saws and band saws were classified as having possible credit. Although they showed a strong indication of being intermediate products, losing cutting capacity during production, the current treatment still revealed underutilization due to insufficient evidence. Abrasives and finishing chemicals, such as cutting discs, flap discs, sandpaper, acetone, hydrated alcohol, and petroleum jelly, were credited because they were consumed or worn out in the finishing and technical cleaning stage, with a direct functional link to the production process, which supported the adequacy of the credit.

Items below the cut-off line, such as smaller drills and low unit value abrasives and similar consumables, although technically eligible for credit, were not appropriate due to an internal financial materiality policy. Factory PPE, such as earmuffs, masks, and gloves, tended to be classified as use and consumption, unless technical proof to the contrary demonstrated accelerated wear and functional exhaustion in the factory environment, which maintained a relevant classification doubt. A4 paper and auxiliary marking materials, such as molds, labels, and markings, were borderline items, tending to be reclassified as use and consumption in the absence of robust proof of full and direct consumption in the production line, which represented a risk of disallowance. Items for use and consumption without direct factory nexus, such as food, building cleaning, and administrative materials, were not credited, which proved correct, as they did not participate in industrialization nor were they functionally consumed in the production process.

Alongside this compliance core, the analysis identified a relevant underutilization of credit. The main factor observed consisted of the adoption of a financial cutoff line, set at R$ 42.58, from which technically eligible items for crediting ceased to be appropriated due to their low unit value. In this situation were small drills, abrasives, and other fast-wearing consumables that, in light of the checklist, showed a positive response regarding participation in a relevant production stage, functional wear, and nexus with the core business, but which did not receive compatible tax treatment due to an internal materiality policy. Circular saws and band saws also remained classified as only possibly eligible for credit, despite presenting a relevant indication of classification as intermediate products.

In quantitative terms, the analysis demonstrated that, of the 190 items examined, 82 were already credited and 31 showed indications of unutilized credit. The additional credit potential reached R$ 21,050.45, of which R$ 10,222.38 corresponded to items kept below the cutoff line. The data thus indicated that a relevant portion of the underutilization stemmed from an internal financial materiality criterion, rather than from an identifiable legal impediment. In parallel, zones of classificatory uncertainty were observed in items for which the checklist did not produce a conclusive answer on all its axes. This was the case for certain factory PPEs, such as earmuffs, masks, and gloves, as well as some cutting tools and internal spare parts. In these cases, the main limitation did not arise from the absence of a link to the production environment, but from insufficient evidence to demonstrate, with greater precision, the wear pattern, the useful life cycle, and the direct functional nexus with the core activity. Conversely, the analysis also identified a hypothesis of fiscal risk associated with the item A4 Paper, in which case the elements indicating its classification as a good for use and consumption appeared more relevant than the alleged link to the production process, in the absence of robust demonstration of integral and direct consumption on the production line. In summary, Company A presented a state of partial compliance with the examined legal parameters. On the one hand, correct appropriation of credits on clearly essential inputs was verified. On the other hand, underutilization resulting from internal financial materiality policy and evidentiary weaknesses in items at the classificatory boundary were identified.

Company B

Company B corresponded to an industry in the furniture sector based in the State of Rio Grande do Sul, focused on the production of exclusive furniture and parts, also operating in corporate projects. The analyzed documents indicated a manufacturing structure oriented towards the fabrication of items with higher finishing requirements, aesthetic differentiation, and technical control of the production process. This circumstance was relevant for understanding the variety of inputs used and the classification complexity observed in the fiscal treatment of some of them. The documentary analysis of Company B was carried out using merchandise curve spreadsheets, details of entries, and related fiscal records. The application of the essentiality checklist revealed heterogeneous fiscal treatment among the main groups of items examined.

The materials most directly linked to cutting, machining, welding, and finishing mostly showed positive adherence to the essentiality criteria. Cutting and machining tools, such as HW and band saws, Wepla knives, and related items, were credited because they directly participated in the cutting and machining stages and suffered physical wear from contact with the raw material, which supported their classification as intermediate products and the appropriateness of the credit. Industrial welding gases, such as argon and related ones, were classified as potentially creditable because they presented immediate and indispensable consumption in the welding stage, with a direct functional link to the core activity, indicating potential unutilized credit. Abrasives and flap discs were credited because they were used in finishing and underwent gradual abrasive wear in the manufacturing process, revealing positive adherence to the functional essentiality criterion.

Solvents, degreasers, and auxiliary chemical items were classified as possible credit, as they showed plausibility of fitting as intermediate products, but the available documentation still required greater precision regarding consumption patterns and specific production stages. Felt blankets, additives, and spare parts were also classified as possible credit, constituting borderline items, as the invoice alone did not sufficiently demonstrate functional wear, productive consumption, or direct link to the core activity, which maintained relevant doubt about their classification. Items of this nature appeared with an indication of appropriate credit, although their essentiality still demanded analytical caution and greater classificatory uniformity.

The factory PPE acquired from Techfer were credited, while items of the same nature acquired from Majuseg were not appropriate, which evidenced internal classificatory inconsistency and prevented a uniform conclusion without additional evidentiary reinforcement. Strategic fixed assets, such as CNC Routers and related machinery, were not appropriate because, although essential to the operation of the production line, they were subject to their own fixed asset crediting regime, not to be confused with intermediate products. Items for use and consumption without direct factory nexus, such as meals, chocolates, food kits, coffees, and related items, were not credited, which proved correct, as they did not participate in industrialization nor were they functionally consumed in the production process.

The positive adherence core to credit showed itself to be broader than the mere presence of cutting and machining tools. The documentation indicated classificatory consistency also in abrasives and flap discs used in finishing, as well as in certain metallic items, fastening components, and functional spare parts linked to the operational continuity of pneumatic machines and tools. In common, these groups presented a technically demonstrable link to central production stages or the immediate maintenance of the factory line’s operational capacity. Alongside this core of conformity, the analysis revealed underutilization of credit in technically eligible items. The main example was that of industrial welding gases, especially those acquired from White Martins, whose immediate consumption and technical indispensability indicated a credit potential not fully utilized. Also in this category were some safety items and auxiliary materials whose internal classification was not uniform.

The analysis also indicated that certain goods relevant to the factory operation did not fit the intermediate product regime. This was the case for the CNC Router Work Center and other durable equipment linked to the production structure, which, although essential to the line’s operation, were subject to the fixed asset regime. The point highlighted that the economic essentiality of the good, by itself, is not enough to classify it as an intermediate product. Zones of classificatory uncertainty were also observed in solvents, degreasers, auxiliary chemicals, blanket felts, additives, and certain spare parts. In these cases, the main limitation did not stem from the absence of a potential link with the production environment, but from the insufficiency of the available documentation to demonstrate the consumption pattern, functional wear, and the specific production stage in which the item was used. The consolidation of the classification would therefore depend on complementary documentation capable of demonstrating the direct functional nexus with the core activity.

A particularly relevant situation was that of personal protective equipment. The documentation pointed to non-uniform treatment for items of the same nature, with differences in classification between distinct suppliers. PPE acquired from Techfer appeared with appropriate credit, while similar items acquired from Majuseg remained without benefit. The table indicated structural uncertainty regarding the applicable regime for the category, as the detailed records suggested functional destination compatible with the manufacturing environment, without the strategic credit summaries consolidating this recognition uniformly. Conversely, the analysis revealed a significant core of expenses with high fiscal risk, notably meals, chocolates, food kits, coffees, and related items, whose treatment as non-creditable proved adequate, as they did not participate in industrialization nor were they functionally consumed in the production process.

In quantitative terms, Company B’s documentary universe totaled 322 examined groups, of which approximately 175 were already credited, 125 remained under classification and documentary review, and 22 corresponded to expenses with high fiscal risk. Financially, preliminary results indicated R$ 30,627.01 of ICMS already appropriated in productive input groups, R$ 23,245.42 linked to items subject to review, and R$ 70,264.87 associated with expenses without direct manufacturing nexus to industrialization. The data thus indicated the coexistence of a relevant core of compliance and an expressive volume of items still dependent on technical review. In summary, Company B presented a partial compliance status with the examined legal parameters. Positive adherence was observed in the crediting of input groups with a direct functional nexus and more consistent documentation, alongside underutilization in technically eligible items, evidentiary weaknesses in borderline materials, the need to distinguish between intermediate products and fixed assets, and internal classification inconsistencies, especially in the treatment of PPE.

Comparative analysis of cases

The comparison between the cases allowed us to observe that the differences between Companies A and B were not precisely in the existence or not of credit, but in the way each one internally structured the classification criteria and the proof of the functional link of the inputs with the core business. In both, the analysis revealed that the tax treatment of the items was not distributed randomly, but followed distinct degrees of proximity to the production process, documentary consistency, and classificatory uniformity. In both cases, a set of groups of items with consistent tax treatment was identified, concentrated mainly on the inputs most directly linked to the central stages of industrial transformation.

In Company A, this set manifested itself mainly in industrial gases used in welding, in cutting and machining tools, in abrasives, and in finishing chemicals. In Company B, in turn, the positive adherence to crediting was broader, encompassing not only cutting and machining tools, but also abrasives and finishing materials, process chemicals used in technical cleaning and lubrication, hardware and industrial fastening components, metallic inputs directly applied to production, and certain functional replacement components related to the operational continuity of pneumatic machines and tools. In both companies, therefore, the greater classificatory consistency was concentrated in the groups where the item’s link to industrial activity was most evident and technically demonstrable.

The comparison also showed that this consistency weakened in the zones of classificatory border, especially in auxiliary items, replacement parts with ambiguous framing, and personal protective equipment. In these groups, the predominant difficulty lay less in the functional plausibility of the item than in the absence of sufficiently robust documentation to stabilize its fiscal framing. In Company A, this was observed in certain PPEs, in some cutting tools, and in internal replacement parts, for which the available evidence did not allow for the necessary precision in demonstrating functional wear, useful life cycle, and direct link to the core business activity.

In Company B, the situation took on particularly relevant contours in the treatment of PPEs, as the detailed records indicated, in several cases, functional destination compatible with the factory environment, while the strategic credit summaries maintained the exclusion of credit. This dissociation revealed, in both cases, that PPEs constituted a common axis of uncertainty, in which the operational functionality of the item did not automatically translate into secure tax recognition. In quantitative terms, the comparison revealed differences in scale and, above all, in the composition of the observed misalignment. In Company A, 190 items were examined, of which 82 were already credited and 31 showed an indication of unused credit, resulting in a potential additional R$ 21,050.45, of which R$ 10,222.38 corresponded to items kept below the internal cut-off line of R$ 42.58.

In Company B, the documentary universe was broader, totaling 322 groups examined, of which approximately 175 were already credited, 125 remained under review, and 22 corresponded to expenses with high fiscal risk. Financially, this translated into R$ 30,627.01 already appropriated, R$ 23,245.42 linked to groups subject to classification and documentary review, and R$ 70,264.87 associated with expenses without direct manufacturing nexus with industrialization. The data thus indicated that, although Company B presented a more extensive documentary base, the two cases shared a common challenge: the coexistence of correctly appropriated credits, unexplored opportunities for utilization, and areas of classificatory instability in sensitive groups.

Despite these convergences, the cases differed regarding the predominant vector of misalignment. In Company A, the main obstacle to the full utilization of credits stemmed from the adoption of an internal financial materiality criterion, by which functionally eligible items ceased to be appropriated due to their low unit value. Underutilization, in this scenario, appeared less as an effect of generalized classification error and more as a result of a managerial filter that restricted crediting for low-value items. In Company B, in contrast, the misalignment assumed a more structural configuration, marked by the coexistence of an expressive core of compliance and relevant areas of classificatory heterogeneity, inconsistency between groups of the same nature, and the need for clearer segregation between intermediate products, auxiliary items, fixed assets, and non-creditable expenses. Added to this was a financially concentrated set of high fiscal risk expenses, correctly excluded from crediting, but relevant to highlight the need for more uniform internal screening and classification criteria.

Discussion of findings in light of the literature and implications for tax management

The research findings indicated that the controversy over the crediting of ICMS on intermediate products, at least in the analyzed cases, manifested less as a problem of abstract definition of the concept and more as a problem of operationalizing the criteria of essentiality, classificatory uniformity, and evidentiary sufficiency. This result was consistent with the literature that moves away from strictly formal readings of the credit regime and favors the function concretely performed by the item in the core business activity, as well as with the jurisprudential orientation that recognizes the relevance of functional essentiality for the classification of intermediate products. The comparison between the cases reinforced this diagnosis, since, in Company A, the main obstacle to the full utilization of credits did not stem from a conceptual rejection of the STJ’s expansive interpretation, but from the adoption of an internal materiality filter, which excluded functionally eligible items due to their low unit value. In Company B, on the other hand, the problem assumed a more structural character, marked by the coexistence between a relevant core of compliance and areas of classificatory heterogeneity, inconsistency between similar groups, and the need for better segregation between intermediate products, auxiliary items, and non-creditable expenses.

Thus, the comparison between the cases demonstrated that the issue of crediting intermediate products, on an empirical level, was not exhausted by the abstract definition of the applicable legal concept. The results suggested that the main obstacles to the adequate and safe use of credits stemmed, to a large extent, from the business capacity to convert the criterion of essentiality into a uniform, documentarily supported, and operationally coherent classification procedure. In one company, the restriction manifested itself mainly through internal economic materiality filters; in the other, through greater classificatory heterogeneity and insufficient consolidation of functional proof in sensitive groups. In both, however, the comparison indicated that the effectiveness of the non-cumulative regime depended less on the existence, in theory, of favorable jurisprudential parameters and more on how these parameters were internalized and applied in the fiscal routine of productive activity.

The results thus suggested that the jurisprudential expansion of the right to credit did not, in itself, eliminate the practical difficulties of its appropriation. It reduced the rigidity of the concept but shifted the center of controversy to the demonstration of the functional link of the input with the productive activity. This became especially visible in items at the classificatory border, such as certain PPEs, spare parts, and auxiliary materials, in which the functional plausibility of the item was not always accompanied by sufficient documentation to stabilize its tax classification. From the perspective of tax management, this result had direct implications. The secure utilization of credits on intermediate products depended less on the mere existence of favorable precedents and more on the business’s ability to translate the legal criterion of essentiality into internal classification, review, and documentation routines. In practical terms, the analysis indicated the need for uniform screening criteria, clearer segregation between tax categories, periodic review of sensitive items, and the formation of a body of evidence capable of supporting the credit in the event of an audit. At the same time, the research also revealed a relevant positive point: in both companies, the groups most directly linked to the central stages of industrial transformation showed greater classificatory and documentary consistency, demonstrating that the internalization of the legal understanding is viable when there is a more evident proximity between the item and the core business activity. Nevertheless, the cases analyzed allowed us to conclude that the effectiveness of non-cumulative taxation, at the applied level, depends not only on the legal recognition of the right to credit but also on the quality of the tax governance that supports it, highlighting that the business application of jurisprudential understanding requires its translation into uniform classification criteria and documentation procedures.

4. Conclusion

This study analyzed how two industries in the furniture sector of Rio Grande do Sul applied the Superior Court of Justice’s understanding regarding the crediting of ICMS on intermediate products, evaluating the conformity of their practices with normative and jurisprudential parameters. It was found that jurisprudence consolidated the criterion of functional essentiality of the input, allowing the crediting of items consumed or gradually worn out when necessary for the core activity. However, the effectiveness of this regime was conditioned by the business’s capacity to internalize such parameters into uniform classification and documentation criteria. In Company A, underutilization of credits was identified due to an internal financial materiality policy, which excluded technically eligible items of low unit value. In Company B, classificatory heterogeneity and evidentiary insufficiency were observed in groups of borderline inputs, such as personal protective equipment and auxiliary materials. The study’s main contribution lies in highlighting that the jurisprudential expansion of the right to credit did not eliminate the practical difficulties of its appropriation, but rather shifted the focus of the controversy to demonstrating the input’s functional nexus with the productive activity, reinforcing the need for consistent fiscal governance.

The limitations of the work stemmed from the examination of only two industries in the furniture sector and the dependence on the documentation provided, which restricted the generalization of the findings and the conclusion about certain items. For future studies, it is suggested to expand the analysis to other industrial sectors, as well as to monitor the effects of adopting standardized classification and documentation procedures on the utilization of credits and the reduction of identified inconsistencies.

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Article originating from the Course Conclusion Work of the Specialization in Tax Management of the MBA USP/Esalq

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