2008 (10) TMI 614 - HC - VAT and Sales Tax

Whether the appellant is entitled to issue form 18 declaration for the purchase of kerosene oil used in the manufacture of titanium dioxide? Held that - In the instant case superior kerosene oil is not used as an input in the use of production of finished product and it is not identifiable in the final product and it is just used as a fuel in the calciners as an aid in the production of finished product and therefore would not answer the description of the expression raw material . Thus the Commissioner of Commercial Taxes is right while clarifying that the appellant cannot use form 18 declarations for purchase of kerosene oil used as a fuel in the manufacture of titanium dioxide. Therefore the appeal requires to be rejected and accordingly it is rejected.

Summary

Issues Involved:
1. Whether the appellant is entitled to issue form 18 declaration forms for the purchase of kerosene oil used as fuel in the process of calcination in the production of titanium dioxide.

Issue-wise Detailed Analysis:

1. Entitlement to Form 18 Declaration for Purchase of Kerosene Oil:
The appellant, a company engaged in the manufacture and sale of titanium dioxide, applied to the Commissioner of Commercial Taxes for clarification on whether they could issue form 18 declarations for purchasing kerosene oil used in the manufacturing process. The Commissioner clarified that form 18 cannot be issued for the purchase of kerosene oil used as fuel in the manufacture of titanium dioxide, as kerosene is used as an aid and not as a raw material in the manufacturing process.

Appellant's Argument:
The appellant argued that kerosene oil is an essential industrial raw material used in the kiln, without which the production of titanium dioxide is impossible. They contended that applying the functional test, kerosene oil should be considered a raw material used in the manufacture of the finished product. The appellant cited several case laws to support their contention, including Collector of Central Excise v. Ballapur Industries Ltd., P. Narendra Menon v. State of Kerala, and Coastal Chemicals Ltd. v. Commercial Tax Officer, A.P.

Revenue's Argument:
The Revenue argued that kerosene oil is used only as fuel for calcination and cannot be considered a raw material used in the manufacture of the finished product. They supported their contention with product literature and relied on the Supreme Court's observation in Coastal Chemicals Ltd. v. Commercial Tax Officer, A.P.

Court's Analysis:
The court examined the relevant provisions of the Kerala General Sales Tax Act, 1963, particularly section 5(3), which provides for a concessional rate of tax for industrial raw materials used in the production of finished products. The court noted that for a material to qualify as a raw material, it must physically enter into the composition of the finished product. The court referred to the dictionary meaning and judicial interpretations of "industrial raw material" and "production."

The court observed that the main raw materials for producing titanium dioxide pigment are ilmenite, ferrous iron, and ferric iron. The manufacturing process involves several stages, including digestion, reduction, clarification, crystallization, hydrolysis, filtration, and calcination. During calcination, superior kerosene oil is used as fuel in the calciners.

The court concluded that kerosene oil assists the manufacturing process but does not physically enter into the composition of the finished product, titanium dioxide. Therefore, kerosene oil does not qualify as a raw material under section 5(3) of the KGST Act. The court held that kerosene oil used as fuel for calcination is an aid in the production process and not a raw material.

Conclusion:
The court upheld the Commissioner of Commercial Taxes' clarification that the appellant cannot use form 18 declarations for purchasing kerosene oil used as fuel in the manufacture of titanium dioxide. The appeal was rejected, and no order as to costs was made.