Mandatory testing and product literature can qualify as consumable stores for input tax credit when integral to marketability.

Goods indispensable to a statutory process that is directly and integrally connected with making drugs marketable may qualify as consumable stores and, therefore, as raw material for input tax credit under the Gujarat Value Added Tax Act. Laboratory stores used for mandatory pre-manufacturing and post-manufacturing testing were treated as part of the manufacturing process because the drugs could not be lawfully marketed without that testing. Product information literature packed with the drugs was also treated as eligible, since the required statutory disclosures were essential to marketability and, on the facts, fell within consumable stores rather than packing material in the narrow sense. The assessee's credit claim was accepted for both items.

---

---

Issues: (i) Whether laboratory stores used for pre-manufacturing and post-manufacturing testing of drugs qualify as raw material or consumable stores used in manufacture for the purpose of input tax credit under section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003; (ii) Whether product information literature packed along with drugs qualifies as packing material or consumable stores and is therefore eligible for input tax credit under the same provision.

Issue (i): Whether laboratory stores used for pre-manufacturing and post-manufacturing testing of drugs qualify as raw material or consumable stores used in manufacture for the purpose of input tax credit under section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003.

Analysis: The statutory definition of raw material under section 2(19) of the Gujarat Value Added Tax Act, 2003 includes consumable stores and material used in packing. The testing carried out in the laboratory was a mandatory requirement under Rule 22.4 of the Drugs and Cosmetics Rules, 1945, and without such testing the finished drugs could not be lawfully marketed. Applying the principle that a process integrally connected with manufacture forms part of manufacture, the laboratory testing activity was treated as commercially indispensable and closely linked to making the goods marketable. The laboratory goods used in that process therefore answered the description of consumable stores used in manufacture.

Conclusion: The claim for input tax credit on laboratory stores was allowed and the issue was decided in favour of the assessee.

Issue (ii): Whether product information literature packed along with drugs qualifies as packing material or consumable stores and is therefore eligible for input tax credit under the same provision.

Analysis: The literature was required by the Drugs and Cosmetics Rules, 1945 to accompany the drug and contain mandatory particulars. Although it was not accepted as packing material in the narrow sense or as material used in packing under section 2(19), the Court held that compliance with the statutory disclosure requirement was essential to marketability of the product. Since the literature was indispensable to the saleable character of the drug, it was treated as consumable stores and, consequently, as raw material within the meaning of section 2(19) for purposes of section 11(3)(a)(vi). The notification regarding paper labels and packing material did not alter this conclusion on the facts.

Conclusion: The claim for input tax credit on product information literature was allowed and the issue was decided in favour of the assessee.

Final Conclusion: Both tax appeals were answered in favour of the assessee, and the disputed items were held eligible for input tax credit because each formed an integral, mandatory component of the process by which the drugs became marketable.

Ratio Decidendi: Goods that are indispensable to a statutory process directly and integrally connected with making manufactured goods marketable, though not part of the finished product itself, may constitute consumable stores and hence raw material for input tax credit purposes.

---