Input tax credit on factory power connection goods allowed where electricity supported manufacturing activity

Electrical and electronic goods used to obtain a factory power connection retained the requisite nexus with manufacturing activity, so input tax credit was allowable under the Karnataka Value Added Tax Act, 2003. The restriction in Section 11 read with Entry 3 of the Fifth Schedule did not apply where the inputs were used for generation of electricity consumed within the factory for manufacturing the final product. Applying the earlier binding view, the Court held that electrical goods, cables, transformers, UPS, and related erection and civil works for the power connection were eligible inputs, and the contrary clarification was unsustainable.

---

---

Issues: Whether the assessee was entitled to input tax credit on electrical goods, cables, transformer, UPS and related erection and civil works used for obtaining power connection to the factory.

Analysis: The restriction under Section 11 and Entry 3 of the Fifth Schedule to the Karnataka Value Added Tax Act, 2003 applies to electrical and electronic goods unless they are used in manufacture, processing, packing or storing of goods for sale, or for computing, issuing tax invoices or sale bills, security and storing information. The Court applied the earlier binding view that electrical and electronic inputs used for generation of electricity, where such electricity is used within the factory for manufacturing activity of the final product, retain the nexus required for input tax credit. On that basis, the electrical goods purchased for the factory power connection were treated as eligible inputs, and the authority's contrary view was held unsustainable.

Conclusion: The assessee was entitled to input tax credit on the electrical goods in question, and the adverse clarification was set aside.

---