Got it..
Assuming Invoice was raised and accounting entry passed into Books of Accounts
In this case, where the tax liability has arisen despite non-payment of invoice, a credit note is the only legal way to annul such superfluous tax burden on the trader.
Any way after 6 months whether such person accept or doesnot accept the credit note, he cannot claim ITC.
Invoice not raised and no accounting entry passed into Books of Accounts
Charge cost of production to P&L a/c. No need to raise invoice, however ITC to the extact equivalent to wastage (goods lost to fraudulent person) needs to be reversed.
Regards
S Kumar