Input tax credit on captive power coal and procedural form requirements cannot override substantive invoice-based verification.

Coal used to generate electricity in a captive power plant may qualify as raw material for manufacture where that electricity is exclusively consumed in producing finished goods for sale, because the generation activity is treated as an integral part of the manufacturing process. The availability of input tax credit is not defeated merely because electricity itself is not goods when the credit is claimed on coal. Form JVAT 404 is a procedural requirement and not an absolute bar; where original tax invoices and proof of tax payment are available, the credit claim must be examined on substantive verification rather than denied solely for non-production of the form.

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Issues: (i) Whether coal purchased for generation of electricity in a captive power plant, where the electricity is used exclusively in manufacturing finished goods for sale, qualifies as raw material for direct use in manufacture so as to allow input tax credit. (ii) Whether failure to produce Form JVAT 404 necessarily disentitles the dealer from input tax credit despite production of original tax invoices and other supporting material.

Issue (i): Whether coal purchased for generation of electricity in a captive power plant, where the electricity is used exclusively in manufacturing finished goods for sale, qualifies as raw material for direct use in manufacture so as to allow input tax credit.

Analysis: The scheme of the tax law allowed input tax credit on goods purchased within the State from a registered dealer and intended for use as raw material for direct use in manufacturing or processing of goods for sale. The electricity generated from coal in the captive plant was found to be an integral part of the manufacturing process, because without that electricity the finished goods could not be produced commercially. The coal used for such generation was therefore treated as raw material connected with the manufacture of the finished products. The fact that electricity itself was not goods did not defeat the claim, since credit was claimed on coal and not on electricity.

Conclusion: In favour of the assessee. Coal used for captive generation of electricity, when that electricity is exclusively used in manufacturing finished goods for sale, qualifies for input tax credit.

Issue (ii): Whether failure to produce Form JVAT 404 necessarily disentitles the dealer from input tax credit despite production of original tax invoices and other supporting material.

Analysis: The statutory provision governing input tax credit required production of original tax invoices and permitted the authority, for good and sufficient reasons, to allow the credit even where original documents were not produced. The rule requiring Form JVAT 404 was held to be consistent only if treated as a procedural safeguard and not as an absolute condition overriding the Act. Substantial compliance and verification of the tax invoices remained available to protect revenue, and denial of credit merely for non-production of the form was unwarranted.

Conclusion: In favour of the assessee. Form JVAT 404 was held to be directory, not mandatory, and the claim for credit had to be re-examined on the basis of tax invoices and proof of tax payment.

Final Conclusion: The impugned assessment, appellate, and revisional orders were set aside, and the assessee was held entitled to input tax credit on coal used for captive electricity generation as well as to reconsideration of the balance credit claim on proper verification.

Ratio Decidendi: Where input goods are used in an activity that is so integrally connected with manufacture that the final production would be commercially inexpedient without it, those goods are treated as raw material for manufacture; a procedural declaration requirement cannot defeat statutory credit when the substantive conditions and tax payment are otherwise verifiable.

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