2009 (2) TMI 751 - HC - VAT and Sales Tax

Whether the appellant is entitled to purchase superior kerosene oil at concessional rate of tax under section 5A of the KST Act against form 37 for use in the manufacture of bitumen mixture for sale in the course of executing works contract of laying of roads? Held that - Bitumen mixture or asphalt which ultimately is laid for the purpose of road can be made only by undergoing some process and that process of mixing the said ingredients make the mixture usable. Thus there is definitely change in the end result of such mixing. In the light of the aforesaid discussion we are of the opinion that the order passed by revisional authority dated March 15 2006 cannot be sustained in law. Same is hereby set aside. Instead the order passed by the Joint Commissioner of Commercial Taxes (Appeals) dated February 10 2005 is hereby restored. The effect of restoration thereof results in allowing this appeal. The question therefore is answered in favour of the appellant and against the Revenue.

Issues Involved:
1. Whether the mixing of asphalt, jelly, and sand involves a manufacturing process resulting in a different product from the ingredients used.
2. Whether the appellant is entitled to purchase superior kerosene oil (SKO) at a concessional rate of tax under section 5A of the Karnataka Sales Tax Act, 1957, for use in the manufacture of bitumen mixture for road laying.

Issue-Wise Detailed Analysis:

1. Manufacturing Process Involving Asphalt, Jelly, and Sand:
The revisional authority questioned whether the mixing of asphalt, jelly, and sand constitutes a manufacturing process resulting in a new product. The appellate authority clarified that the bitumen mixture/asphalt is manufactured using bitumen, chemicals, jelly, etc., as per technical specifications. This mixture is prepared at one location and transported to the work site for road laying. The process involves melting bitumen and mixing it with other ingredients while heating, facilitated by SKO acting as a catalyst. The appellate authority concluded that SKO is used as a consumable/input in the manufacture of bitumen mixture, thus applicable under section 5A of the Act.

2. Entitlement to Purchase SKO at Concessional Rate:
The appellant, a registered dealer under the Act, used SKO in the preparation of bitumen mixture for road laying. The assessing authority issued a notice proposing a penalty under section 5A(3)(iii) of the Act, alleging misuse of form 37 declaration for purchasing SKO as fuel, which is not permissible. The appellate authority, however, found that SKO was used as a catalyst in the manufacture of bitumen mixture and not as fuel. The appellate authority's decision was based on the process of manufacture and the role of SKO in it, leading to the conclusion that there was no violation of section 5A(3)(iii).

Legal Precedents and Reasoning:
The appellant relied on the Division Bench judgment in Habeeb Proteins & Fats Extracts v. Commissioner of Commercial Taxes, which clarified the concept of "consumption" in manufacturing. The Supreme Court's decision in Commercial Taxation Officer, Udaipur v. Rajasthan Taxchem Ltd. and Union of India v. J.G. Glass Industries Ltd. was also referenced to define "manufacture" and distinguish it from mere "processing." The High Court of Kerala's ruling in Namputhiris Pickle Industries v. State of Kerala further supported the argument that a new and distinct product must emerge from the manufacturing process.

Conclusion:
The court concluded that the bitumen mixture or asphalt resulting from the mixing of bitumen, chemicals, jelly, and SKO constitutes a new product. This process qualifies as "manufacture" under the Act. The order of the revisional authority dated March 15, 2006, was set aside, and the order of the Joint Commissioner of Commercial Taxes (Appeals) dated February 10, 2005, was restored. The appellant's entitlement to purchase SKO at a concessional rate for manufacturing bitumen mixture was upheld, answering the question in favor of the appellant and against the Revenue.

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