Functional test for electricity-generation goods: items integrally connected with a thermal power project were eligible for registration certificate inclusion.

Goods required for a thermal power project may qualify for inclusion in the registration certificate under section 8(3)(b) of the Central Sales Tax Act when they are integrally connected with generation and distribution of electricity. Applying the functional test recognised by the Supreme Court, items used for the power house building, civil works, control room, roads, water treatment, plant protection, control systems, switchyard transmission, and operation and maintenance were treated as part of the integrated electricity-generation process, even if not directly consumed in producing power. The narrower administrative view was found inconsistent with the statutory scheme, and exclusion of the disputed items was set aside.

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Issues: Whether the goods sought to be included in the registration certificate for use in a thermal power project were goods intended for use in the generation and distribution of electricity within the meaning of section 8(3)(b) of the Central Sales Tax Act, 1956.

Analysis: The governing test is whether the goods are integrally related to the generation and distribution of electricity, applying the functional test recognised by the Supreme Court. Goods need not be directly consumed in producing electricity if they are part of the integrated process without which the activity would be commercially inexpedient. On that principle, items required for the power house building, associated civil works, control room, roads, water treatment, plant protection, control systems, switchyard transmission and operation and maintenance of the thermal plant could not be treated as merely remote or independent of the power-generation activity. The prior administrative view was found to have adopted an unduly narrow approach inconsistent with the statutory scheme and the controlling authorities.

Conclusion: The disputed goods, to the extent held necessary for the construction, operation and maintenance of the thermal power plant and for evacuation and control of generated power, were eligible for inclusion in the registration certificate; the exclusion of those items was set aside.

Ratio Decidendi: For a dealer engaged in generation and distribution of electricity, goods qualify under section 8(3)(b) if they are integrally connected with the electricity-generation activity and satisfy the functional test, even though they may not be directly consumed in the actual generation process.

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