2001 (4) TMI 874 - AT - VAT and Sales Tax

Issues Involved:
1. Levy of purchase tax on groundnut shell and coconut shell used as fuel in the manufacture of paper boards.
2. Interpretation of the term "consumed" under section 7A of the Tamil Nadu General Sales Tax Act, 1959.
3. Applicability of the Supreme Court's decisions in related cases.
4. Legislative intent and the impact of amendments to the Tamil Nadu General Sales Tax Act.

Detailed Analysis:

1. Levy of Purchase Tax on Groundnut Shell and Coconut Shell Used as Fuel:
The primary issue in these tax appeals was whether groundnut shell and coconut shell used as fuel in the manufacture of paper boards are subject to purchase tax. The first appellate authority had deleted the levy of purchase tax, relying on the Supreme Court decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320, which held that fuel cannot be considered for the levy of purchase tax as it is not identifiable in the final product. However, the Joint Commissioner revised this decision, asserting that the levy of tax under section 7A of the Tamil Nadu General Sales Tax Act is justified even if the goods are used as fuel in the manufacturing process.

2. Interpretation of the Term "Consumed":
The term "consumed" under section 7A was central to the dispute. The appellants argued that "consumed" should mean as raw material or component part of the end-product, not for ancillary purposes like fuel. They cited the Supreme Court's interpretation in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320, which stated that goods used for ancillary purposes like fuel do not fall under the term "consumed" for the purpose of levying purchase tax.

3. Applicability of Supreme Court's Decisions:
The appellants relied heavily on the Supreme Court's decision in Thomas Stephen & Co. Ltd. [1988] 69 STC 320, which had not been overruled by subsequent decisions. They also referenced Coastal Chemicals Ltd. v. Commercial Tax Officer, A.P. [2000] 117 STC 12 (SC), where it was held that "consumables" refer to materials used as an input in the manufacturing process but not identifiable in the final product. The respondents, however, cited the Supreme Court's decision in Assistant Commissioner (Intelligence) v. Nandanam Construction Company [1999] 115 STC 427, which overruled the Pio Food Packers case and upheld the levy of purchase tax on goods consumed in any manner, including as fuel.

4. Legislative Intent and Impact of Amendments:
The appellants contended that the amendment to section 7A(1)(a) by Act No. 60 of 1997, effective from April 1, 1996, clarified the legislative intent to tax consumables like fuel. They argued that prior to this amendment, the legislative intent was not to tax fuel. However, the Tribunal found that the amendment was introduced to clear ambiguity and that the legislative intent to tax fuel was evident even before the amendment, as supported by the Supreme Court's decision in Nandanam Construction Company [1999] 115 STC 427.

Conclusion:
The Tribunal upheld the levy of purchase tax on groundnut shell and coconut shell used as fuel in the manufacture of paper boards. It found that the goods consumed as fuel fall within the scope of section 7A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959. The Tribunal dismissed the appeals, affirming the Joint Commissioner's order and emphasizing that the legislative intent and Supreme Court's rulings support the levy of purchase tax on such consumables.

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