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2016 DIGILAW 1484 (GUJ)

State of Gujarat v. SAL Steel Limited

2016-07-26

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. All the above Tax Appeals are the Appeals filed by the State. Special Civil Application No. 459/2016 was listed on the Board on 25.07.2016 but today the said matter is not listed. However, since the facts in Special Civil Application No. 459/2016 are akin to the above matters, the same is taken up for hearing today. 2. While admitting the Tax Appeals No. 251/2013 and 252/2013 on 08.08.2013 and 856/2013 on 04.10.2013, the following substantial question of law was framed for consideration and determination by this Court: "Whether on the facts and in the circumstances of the case, the Tribunal has rightly held that, coal used in the manufacture of sponge iron is raw material and therefore, input tax credit cannot be reduced by applying Section 11(3)(b)(iii) of the Gujarat Value added Tax Act, 2003?" 3. While admitting Tax Appeal No. 1113/2013 on 20.12.2013, the following substantial questions of law were framed for consideration and determination by this Court: "(A) Whether on the facts and in the circumstances of the case, the Tribunal has rightly set aside the orders dated 29.03.2011 and 09.02.2012 passed by the Deputy Commissioner of Commercial tax, Corporate (2), Ahmedabad and Joint Commissioner of Commercial Tax, Appeal-2, Vadodara respectively and held that, the opponent is entitled to entire input tax credit u/s. 11(3)(b)(iii) of the Gujarat Value Added Tax Act, 2003, in respect of Natural Gas and Coke? (B) Whether on the facts and in the circumstances of the case, the Tribunal has rightly held that, purchase price is exclusive of the tax element for the purpose of reduction of the Input Tax Credit u/s. 11of the Gujarat Value Added Tax Act, 2003?" 4. While admitting Tax Appeals No. 941/2013 and 944/2015 on 07.12.2015, the following substantial question of law was framed for consideration and determination by this Court: "Whether the Hon'ble Tribunal has erred in deleting the reduction of 4% of input tax credit under the provisions of section 11(3)(b)(iii) of the Act on purchase of furnace oil used as fuel?" 5. The brief facts which give rise to Tax Appeals No. 251/2013, 252/2013 and 856/2013 are as under:- 5.1. The respondents herein are registered dealers under the Gujarat Value Added Tax Act, 2003 and also under the Central Sales Tax Act, 1956. The brief facts which give rise to Tax Appeals No. 251/2013, 252/2013 and 856/2013 are as under:- 5.1. The respondents herein are registered dealers under the Gujarat Value Added Tax Act, 2003 and also under the Central Sales Tax Act, 1956. The respondents of Tax Appeals No. 251/2013 and 252/2013 are doing business of manufacturing of sponge iron, ferrochrome, ferro manganese and other steel products whereas the respondent in Tax Appeal No. 856/2013 is doing the business of manufacturing of Pig Iron, using Iron Ore, Lime Stonex, Dolomite and Lam Coal. 5.2. The respondents had filed an application U/s. 80 of the Gujarat Value Added Tax Act, 2003, before the Joint Commissioner of Commercial Tax, Legal, Ahmedabad to determine that, whether the respondent is eligible for Input Tax Credit on the purchases of Coal or not? At the time of hearing of the determination application, the respondents remained present and made their submission and argued that the coal purchased by them is not used as fuel but used as an ingredient in the manufacturing activities. The Joint Commissioner of Commercial Tax, Legal, Ahmedabad held that coal used by the respondent is for heating purpose and by considering Section 11(3)(b), passed an order to reduce 4% of Input Tax Credit. 6. Being aggrieved and dissatisfied by the above order, the respondents preferred First Appeals before Tribunal whereby the Tribunal allowed the Appeals and quashed and set aside the determination order passed by the Joint Commissioner of Commercial Tax, Legal, Ahmedabad and held that coal is used by the opponent as raw material in manufacture of sponge iron and therefore, admissible Input Tax Credit cannot be reduced by applying the Section 11(3)(b)(iii) of the Gujarat Value Added Tax Act, 2003 in connection with the purchase of coal made by the respondents. Being aggrieved and dissatisfied by the above order of the Tribunal, the above Tax Appeals are filed. 7. The brief facts which give rise to Tax Appeal No. 1113/2013 are that the respondent in the Appeal is a Public Limited Company registered and incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of manufacture and sale of sponge iron, i.e. hot briquetted iron and holds registration certificates under the Gujarat Value Added Tax Act, 2003 as well as the Central Sales Tax Act, 1956. 7.1. 7.1. During the assessment for the period from 2006-2007, the Deputy Commissioner of Commercial Tax, Corporate-2, Ahmedabad u/s. 34 of the Gujarat Value Added Tax Act, 2003 held that natural gas and coke was used as fuel in the manufacture of goods and hence, the admissible input tax credit relating to the purchases of natural gas and coke was reduced by 4% of the purchase price by relying upon the provisions contained in Section 11(3)(b)(iii) of the above Act. The respondent thereby preferred a first appeal before the Joint Commissioner of Commercial Tax, Appeal-2, Vadodara wherein the appeal was dismissed and the assessment order was confirmed. Being aggrieved and dissatisfied, the respondent preferred a second appeal before the Tribunal whereby the Tribunal partly allowed the Appeal and further quashed and set aside the orders dated 29.03.2011 and 09.02.2012 passed by the Deputy Commissioner of Commercial Tax, Corporate (2), Ahmedabad and Joint commissioner of Commercial Tax, Appeal-2, Vadodara respectively and held that the respondent is entitled to entire input tax credit relating to such purchases of Natural Gas and Coke, which gives rise to the present Appeal. 8. The brief facts which give rise to Tax Appeals No. 941/2015 and 944/2015 are that assessing officer for the financial year 2007-2008 and 2006-2007 in the respective appeals passed an assessment order under the provisions of the Gujarat Value Added Tax Act which was challenged by the respondents before the first appellate authority. The first appellate authority allowed the appeal of the respondents vide orders dated 29.12.2012. The Tribunal vide its order dated 13.06.2014 partly allowed the appeal of the respondents. 9. Learned Assistant Government Pleaders for the appellant - State herein contended that the Tribunal has committed an error in not taking into account the submissions made by the State Government. Reliance is placed on the decision of the Kerala High Court in the case of M/s. Travancore Titanium v. the Commissioner of Commercial Taxes in ST Appeal No. 4/2006. 10. Learned Counsel for the respondent/s have relied on the decision of this Court in Tax Appeals No. 968/2015 and allied matters dated 08.03.2016 and relevant paragraphs of the said decision reads as under:- "10. From the process described hereinabove, it is evident that insofar as fuel is concerned, the vertical shaft is heated through external electricity heater. 10. Learned Counsel for the respondent/s have relied on the decision of this Court in Tax Appeals No. 968/2015 and allied matters dated 08.03.2016 and relevant paragraphs of the said decision reads as under:- "10. From the process described hereinabove, it is evident that insofar as fuel is concerned, the vertical shaft is heated through external electricity heater. Insofar as the use of pet coke in the manufacture of cement is concerned, the same is mixed with lime stone, silica, red oxide and bauxite in definite proportion as per the formula. The mixture is then crushed into a homogeneous powder which is then heated in a vertical shaft kiln, wherein an exothermic reaction takes place and the powder is converted into a compound called clinker which consists of all the chemical elements of the raw material. Therefore, the chemical elements contained in pet coke also form part of the compound called clinker. 12. Thus, for the purpose of manufacture, the raw material should ultimately get a new identity by virtue of the manufacturing process either on its own or in conjunction or combination with other raw materials. The input would not cease to be raw material by reason alone of the fact that in the course of the chemical reactions, the ingredient is consumed or burnt up. All the same, it would still remain a raw material. In the present case, pet coke is used as a raw material for the manufacture of clinker and forms an ingredient thereof. Despite the fact that Sodium Sulphate used in the manufacture of paper gets consumed and burnt up it has been held to be not a fuel but raw material; whereas, insofar as pet coke used in the manufacture of clinker, nothing has been brought on record to show that it is consumed or burnt up. Even if pet coke is consumed or burnt up in the manufacturing process, it would still not cease to be a raw material as the production of the end product viz. cement depends upon its presence in the manufacturing process. In the present case, it appears that the pet coke used in the manufacture of cement, during the course of the manufacturing process gives rise to an exothermic reaction, as a result whereof it loses its apparent identity and forms part of the end product. cement depends upon its presence in the manufacturing process. In the present case, it appears that the pet coke used in the manufacture of cement, during the course of the manufacturing process gives rise to an exothermic reaction, as a result whereof it loses its apparent identity and forms part of the end product. Essentially, therefore, pet coke forms one of the ingredients of cement and merely because there is an exothermic reaction in the preparation of cement which may be facilitated by its presence, pet coke would not cease to be a raw material." 10.1. Learned Counsel for the respondents have also placed reliance on the decision of the Bombay High Court in the case of Additional Commissioner of Sales Tax, VAT-1, Mumbai v. Gupta Metallics & Power Ltd. reported in [2012] 54 VST 292 (Bom) wherein it was held that the report in question clearly indicated that to convert iron ore into sponge iron the non-coking coal is used, that the mixture of iron ore and non-coking coal when heated from outside would ultimately get converted into sponge iron, that on account of the chemical qualities of the non-coking coal, heat is generated, the carbon of non-coking coal reduces the iron oxide slowly to sponge iron and carbon monoxide gas is generated, that inside the bed the non-coking coal plays the role of a reductant, a highly exothermic reaction takes place and produces the bulk of the heat required for the process, that non-coking coal provides the gas carbon monoxide for satisfying the heat requirements of the process. On account of this, the author of the report observed that "it indirectly plays a role of fuel in the rotary kiln process". Merely because heat is generated in the process it cannot be a ground to hold that non-coking coal so used was used as fuel. The observations clearly showed that the coal used in the process of manufacturing of sponge iron is used as a raw material and not as a fuel. The assessing officer as well as the appellate authority misread the text of the report and the Tribunal has rightly held that the coal used by the dealer was a raw material and not used as a fuel and allowed it to set off the entire tax paid on the purchase of coal. 11. The assessing officer as well as the appellate authority misread the text of the report and the Tribunal has rightly held that the coal used by the dealer was a raw material and not used as a fuel and allowed it to set off the entire tax paid on the purchase of coal. 11. We have heard learned Counsel for the respective parties and perused the records of the case. Considering the ratio laid down in the above decision especially of this Court in Tax Appeal No. 968/2015 and decision of the Bombay High Court in the case of Additional Commissioner of Sales Tax, VAT-1, Mumbai v. Gupta Metallics & Power Ltd. (supra), we are of the view that the issues raised in the above Appeals are now squarely covered by the above decisions. Consequently, the issues are answered in favour of the assessees and against the Department. All the Appeals stand disposed of in the aforesaid terms. ORDER IN SPECIAL CIVIL APPLICATION NO. 459/2016 This Writ petition was filed since it was a revision before the Tribunal and not an Appeal. The facts are identical and therefore, they are not reproduced. RULE returnable forthwith. Learned Advocate appearing for the respondent waives service of notice of Rule. This petition is filed with the following main prayers:- "(B) YOUR LORDSHIPS may be pleased to issue writ of certiorari or any other writ, direction and/or order, quashing and setting aside the impugned order dated 15.07.2015 passed in Revision Application No. 38 of 2014 by the learned Tribunal. (C) YOUR LORDSHIPS be pleased to issue a writ of mandamus or any other writ declaring that the impugned order dated 15.07.2015 passed in Revision Application No. 38 of 2014, by learned Tribunal is bad in law. (D) Pending hearing and final disposal of the petition, the Hon'ble Court may be pleased to stay the implementation, execution and operation of order dated 15.07.2015 passed in Revision Application No. 38 of 2014 by learned Tribunal. (E) Pass an ex-parte order in terms of prayer 8(D)." In view of the decision of this Court rendered today in Tax Appeal No. 251/2013 and allied matters, the order of the Tribunal is quashed and set aside. Rule made absolute to the aforesaid extent.