Input tax credit on furnace oil in manufacturing upheld where fuel formed an integral part of production.

Furnace oil used in the manufacturing process was treated as processing material or consumable stores under the Gujarat Value Added Tax Act, 2003, because the governing interpretation included goods used in production and excluded only fuel for generation of electricity. The earlier statutory construction applied by the court indicated that fuel integral to manufacturing activity could not be denied credit merely by labelling it fuel. On that reasoning, the Tribunal's contrary view was inconsistent with the settled interpretation, and the assessee's entitlement to tax credit was upheld.

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Issues: Whether furnace oil used in the manufacturing process is not processing material or consumable stores and, accordingly, whether the assessee was entitled to tax credit.

Analysis: The Tribunal's view was tested against the earlier decision on the same statutory scheme, which construed the definition of raw material under the Gujarat Value Added Tax Act, 2003 to include goods used as processing materials or consumable stores, while excluding only fuels for generation of electricity. The governing principle was that goods used as fuel in the manufacturing process, where they play an integral role in production, fall within the broader statutory expression unless the use is disconnected from manufacturing activity. On that reasoning, furnace oil used in the process could not be excluded merely because it was fuel, and the contrary finding of the Tribunal was inconsistent with the settled interpretation.

Conclusion: The use of furnace oil was held to be processing material or consumable stores, and the issue was answered in favour of the assessee and against the department.

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