Input tax credit reduction cannot extend to capital goods not consumed in manufacture under the notification.

Capital goods used in manufacturing taxable goods were held not to fall within the expression "input including raw material" in the 29.06.2010 notification. The Court reasoned that "input" refers to goods consumed or incorporated in the final product, ordinarily raw materials and consumables, whereas capital goods such as plant and machinery retain durability and are not used up in manufacture. The separate statutory treatment of tax credit for raw materials and capital goods confirmed that no reduction of input tax credit was intended on the sale of goods in inter-State trade and commerce on that basis.

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Issues: Whether capital goods used in manufacture of taxable goods could be treated as "input" within Entry 2 of the notification dated 29.06.2010 so as to require reduction of input tax credit when the goods were sold in the course of inter-State trade and commerce.

Analysis: The notification required reduction of tax credit when goods were used as "input including raw material" in the manufacture of goods sold in inter-State trade and commerce. The Court held that "input" refers to what goes into the final product and ordinarily covers consumable materials and ingredients used up in the manufacturing process. "Capital goods", defined under the GVAT Act as plant and machinery used for manufacture and carrying a degree of durability, are not consumed in the process of manufacture and are distinct from raw materials. The Court also accepted that the statutory scheme separately recognizes tax credit for raw materials and capital goods, which reinforces that capital goods were not intended to fall within the expression "input including raw material".

Conclusion: Capital goods are not covered by the expression "input including raw material" in the notification, and reduction of input tax credit on that basis was unsustainable.

Final Conclusion: The Tribunal's view was affirmed and the Revenue's challenge failed.

Ratio Decidendi: In the context of a taxing notification, "input" denotes goods consumed or incorporated in the final product, and durable plant and machinery falling within "capital goods" cannot be read into that expression absent clear legislative intent.

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