Manufacturing inputs for captive power can qualify as consumables where electricity is integrally used in production.

Under the Gujarat sales tax scheme, fuels used to generate electricity for the manufacturing line may qualify as "raw material", "processing material" or "consumable stores" where the power is directly and integrally deployed in manufacture, even though the fuels do not become part of the finished product. The Gujarat provisions were read broadly, and a restrictive noscitur a sociis approach was rejected because it would cut down the statutory purpose. The Gujarat statutory language was also distinguished from Coastal Chemicals, and the broader tests in J.K. Cotton and Ballarpur Industries were treated as the governing principles. The claimed benefit does not extend to electricity used for non-manufacturing purposes.

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Issues: (i) Whether fuels such as natural gas, furnace oil, light diesel oil and naphtha used for generating electricity in the manufacturing process are "raw material", "processing material" or "consumable stores" under the Gujarat Sales Tax Act, the rules, and the exemption notifications. (ii) Whether the test in Coastal Chemicals or the tests in J.K. Cotton and Ballarpur Industries apply to the Gujarat statutory scheme.

Issue (i): Whether fuels such as natural gas, furnace oil, light diesel oil and naphtha used for generating electricity in the manufacturing process are "raw material", "processing material" or "consumable stores" under the Gujarat Sales Tax Act, the rules, and the exemption notifications.

Analysis: The statutory scheme under section 15B, rule 42 and the exemption notifications was read in the light of earlier Gujarat precedents holding that the expression used in manufacture is not confined to materials that become part of the final product. The Court treated the manufacturing activity as including all integral processes that are commercially necessary to bring about the end-product. It held that fuel used to generate steam or electricity, where such power is directly deployed in the manufacturing line, has the required nexus with manufacture and does not cease to qualify merely because it is not identifiable in the finished goods. The Court also held that the phrase "processing material" and "consumable stores" are not to be collapsed into a narrow residue of raw material, and that the statutory context does not justify a restrictive noscitur a sociis approach that would defeat the broader legislative purpose.

Conclusion: The fuels used for generating electricity employed in manufacture were held to fall within the expressions "raw material", "processing material" or "consumable stores" for the purposes of the Gujarat law, except to the extent electricity is diverted for non-manufacturing purposes.

Issue (ii): Whether the test in Coastal Chemicals or the tests in J.K. Cotton and Ballarpur Industries apply to the Gujarat statutory scheme.

Analysis: The Court distinguished Coastal Chemicals on the ground that it turned on materially different statutory language, where the surrounding words and structure confined the meaning of consumables. It held that the Gujarat provisions are differently worded and are not pari materia with the Andhra Pradesh enactment considered in Coastal Chemicals. The Court reaffirmed that the Gujarat law is better governed by the broader principles in J.K. Cotton and Ballarpur Industries, under which a process integrally connected with manufacture and commercially indispensable to it is part of manufacture, and inputs consumed in such a process may still qualify even if they do not enter the finished product.

Conclusion: The tests in J.K. Cotton and Ballarpur Industries were held to apply to the Gujarat provisions, and Coastal Chemicals was held not to govern the present controversy.

Final Conclusion: The questions referred on remand were answered in favour of the assessees, subject to the limitation that electricity used for non-manufacturing purposes would not qualify for the claimed benefit.

Ratio Decidendi: Under the Gujarat sales tax scheme, goods consumed in an activity that is an integral and commercially indispensable part of manufacture may qualify as raw material, processing material or consumable stores even if they do not become part of the final product, and a precedent construing materially different statutory language will not control.

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