2006 (9) TMI 499 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to relief under Rule 29(xii) of the Punjab General Sales Tax Rules, 1949.
2. Interpretation of "used" or "consumed" in the context of manufacturing under Rule 29(xii).
3. Whether furnace oil qualifies as an essential commodity in the manufacturing process.

Detailed Analysis:

1. Entitlement to Relief Under Rule 29(xii):
The primary issue was whether the assessee was entitled to relief under Rule 29(xii) of the Punjab General Sales Tax Rules, 1949, for the purchase value of furnace oil used in manufacturing iron and steel goods. The Tribunal had initially allowed the deduction, but the revisional authority later disallowed it, arguing that the furnace oil was not directly used as raw material.

2. Interpretation of "Used" or "Consumed" in Manufacturing:
The court examined the terms "used" or "consumed" in the context of Rule 29(xii). It relied on several precedents, including the Supreme Court's interpretation in cases like Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality and J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, to establish that "used" or "consumed" should be understood broadly. The court noted that these terms encompass any process integrally connected with the ultimate production of goods, not just the final act of consumption.

3. Furnace Oil as an Essential Commodity:
The court considered whether furnace oil, used in the manufacturing process, could be classified as an essential commodity. The assessee argued that furnace oil was crucial for manufacturing steel products, and without it, production was not feasible. The court agreed, citing various judgments, including Indian Farmers Fertiliser Co-operative Ltd. v. Collector of Central Excise, Ahmedabad, and Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd., which supported the view that materials integral to the manufacturing process, even if not present in the final product, qualify for tax deductions.

Conclusion:
The court concluded that furnace oil is a primary and essential commodity in the manufacturing process of iron and steel goods. The deduction under Rule 29(xii) was deemed applicable as the furnace oil had been "used" or "consumed" in manufacturing. The question was answered in favor of the assessee, granting them the relief claimed under Rule 29(xii) of the Punjab General Sales Tax Rules, 1949.