2007 (4) TMI 658 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the circular dated September 2, 2005, issued by the Sales Tax Commissioner, State of Gujarat.
2. Whether the circular dated September 2, 2005, can have retrospective effect.
3. Whether the fuels used by the petitioners can be regarded as raw materials, processing materials, or consumable stores in the manufacture of taxable goods.

Detailed Analysis:

Issue 1: Validity of the Circular Dated September 2, 2005
The circular dated September 2, 2005, issued by the Sales Tax Commissioner, State of Gujarat, revoked the previous circular dated February 19, 2001. The petitioners argued that the circular of 2001 correctly interpreted the law and granted exemptions for fuels used in manufacturing processes. They contended that the circular of 2005, which relied on the judgment in Coastal Chemicals Ltd. [2000] 117 STC 12, was incorrect. The respondents argued that the circular of 2005 correctly interpreted the law based on the Supreme Court's judgment in Coastal Chemicals Ltd. and the Gujarat Sales Tax Tribunal's decision in Pandesara Industries Private Limited (Second Appeal No. 682 of 2003).

Issue 2: Retrospective Effect of the Circular Dated September 2, 2005
The petitioners claimed that the circular dated September 2, 2005, should not have retrospective effect, as it nullified rights that had already accrued under the circular dated February 19, 2001. The court agreed with the petitioners, stating that the rights which came into existence pursuant to the circular of 2001 could not be nullified retrospectively by an executive order. The court cited several Supreme Court judgments, including West Bengal Hosiery Association v. State of Bihar [1988] 71 STC 298 (SC) and British Physical Lab India Ltd. v. State of Karnataka [2000] 119 STC 6 (SC), to support its decision.

Issue 3: Classification of Fuels as Raw Materials, Processing Materials, or Consumable Stores
The court noted that determining whether fuels used by the petitioners could be classified as raw materials, processing materials, or consumable stores required a detailed examination of the manufacturing processes employed by different industries. The court decided not to examine this issue on merits and instead remitted the matter to the assessing authority/appellate authority for a detailed evaluation. The court directed that the assessing authorities should consider the evidence and submissions of the petitioners and respondents, and determine whether the fuels used fall within the terms "raw material, processing material, or consumable stores" as per the Act.

Conclusion:
The court held that the circular dated September 2, 2005, could not operate with retrospective effect and quashed the notices issued for reassessment based on this circular. The court declared that the circular dated February 19, 2001, held the field until it was withdrawn by the circular dated September 2, 2005. Consequently, any recovery for the period prior to September 2, 2005, should be based on the circular dated February 19, 2001. The court remitted the issue of whether the fuels used by the petitioners qualify as raw materials, processing materials, or consumable stores to the assessing authority/appellate authority for determination. The court directed the authorities to adjudicate upon the notices under section 50 of the Act expeditiously and allowed the petitioners to challenge any adverse decisions in accordance with the law.