1990 (12) TMI 301 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Interpretation of the term "consumables" under Section 5-B of the Andhra Pradesh General Sales Tax Act, 1957.
2. Applicability of concessional tax rates to various goods used in manufacturing processes.
3. Validity of the Commercial Tax Officer's assessment and the Oil and Natural Gas Commission's actions.

Issue-wise Detailed Analysis:

1. Interpretation of the term "consumables" under Section 5-B of the Andhra Pradesh General Sales Tax Act, 1957:
The primary issue in these writ petitions revolves around the interpretation of the term "consumables" as used in Section 5-B of the Andhra Pradesh General Sales Tax Act, 1957. The petitioners argued that "consumables" should include goods used during the manufacturing process or for running machinery, even if they do not become part of the end-product. They relied on various Supreme Court rulings interpreting similar language in Section 8(3)(b) of the Central Sales Tax Act, 1956.

However, the court referred to the decisions of the Kerala High Court and the Supreme Court in Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd., which interpreted the term "consumes" in a restricted manner. The court held that "consumables" must be used directly in the manufacture of the end-product and become part of it. Goods used merely as fuel or for ancillary purposes do not fall within this definition.

2. Applicability of Concessional Tax Rates:
The petitioners claimed that they were entitled to a concessional tax rate of 4% under Section 5-B for their purchases of natural gas, diesel, and other goods used in manufacturing. They argued that these goods should be taxed at the concessional rate as they are necessary for the manufacturing process.

The court, however, held that the concessional rate under Section 5-B applies only to goods that become part of the end-product. Since the goods in question (natural gas, diesel, etc.) were used as fuel or for running machinery and did not become part of the end-product, they did not qualify for the concessional rate. The court emphasized that "consumables" must be integrally connected to the end-product to attract the concessional rate.

3. Validity of the Commercial Tax Officer's Assessment and the Oil and Natural Gas Commission's Actions:
The Commercial Tax Officer had issued a show cause notice to the Oil and Natural Gas Commission, proposing a provisional assessment at 10% instead of the 4.17% paid by the Commission. The Commission's contention that the concessional rate was applicable was rejected, and the provisional assessment was confirmed.

The court upheld the Commercial Tax Officer's assessment, stating that the concessional rate was not applicable to fuel gas and other gases mentioned in entry 118 of the First Schedule to the Act. The court noted that the Oil and Natural Gas Commission should have filed appeals against the provisional assessment orders before demanding the differential tax from the petitioners.

Conclusion:
The court dismissed all the writ petitions, holding that the term "consumables" under Section 5-B of the Andhra Pradesh General Sales Tax Act, 1957, does not include goods used merely as fuel or for ancillary purposes. The concessional tax rate of 4% is applicable only to goods that become part of the end-product. The Commercial Tax Officer's assessment and the actions of the Oil and Natural Gas Commission were upheld. The court also rejected the petitioners' new contention regarding the inclusion of "gas" and "diesel oil" in specific schemes between 1987 and 1989 due to lack of material evidence.