2010 (11) TMI 867 - HC - VAT and Sales Tax

Whether use/consumption of HSD and cement is integrally connected in the process of mining activities undertaken by the petitioner? Held that - Considering the matter from any angle, we are of the view that HSD which is necessary to run the heavy machineries is integrally connected in the mining operation and processing of mining ore so long the said activities and the process is continuing. We are also of the view that cement is necessary for installation of the mining machineries and construction of benches/plates to carry on the mining operation and processing of mining ore. But the question that arises now is whether like HSD, cement is necessary so long mining operation and processing of mining ore goes on. Cement as stated above, is necessary for installation of machineries, i.e., primary stage of the mining activities and construction of benches and plates. After installation of the machineries and construction of benches/ plates, utilization of cement is almost insignificant. Therefore, we feel it proper to remit the matter to O.P. No. 2, Assistant Commissioner, so far as the use of cement is concerned to decide the extent of period for which the petitioner should be allowed to purchase cement at a concessional rate of tax for the purpose of utilizing the same in mining operation and processing of the mining ore. Writ allowed.

Issues Involved:
1. Legality of the orders under Annexures 1 and 2.
2. Eligibility of "high speed diesel (HSD)" and "cement" for concessional tax rate under the OVAT Act and CST Act.
3. Initiation of penalty proceedings under Section 10A of the CST Act.

Issue-wise Detailed Analysis:

1. Legality of the Orders under Annexures 1 and 2:

The petitioner challenged the orders dated August 18, 2006, and June 24, 2006, issued by the Commissioner of Sales Tax and the Assistant Commissioner of Sales Tax, respectively. These orders deleted "HSD and cement" from the registration certificate under the OVAT Act and CST Act, on the grounds that these items were not "raw materials" or "inputs" used directly in mining or manufacturing. The petitioner argued that these orders were illegal, arbitrary, and contrary to the provisions of the OVAT Act, CST Act, and settled principles of law as decided by the apex court.

2. Eligibility of "HSD" and "Cement" for Concessional Tax Rate:

The petitioner, a public limited company engaged in mining and processing mineral ore, claimed that HSD was used for operating heavy machinery essential for mining and crushing activities, and cement was used in construction projects related to mining operations. The petitioner argued that under Section 2(25) of the OVAT Act, "input" includes consumables directly used in processing or manufacturing, and thus HSD and cement should be eligible for concessional tax rates.

The court examined the provisions of Section 8(3)(b) of the CST Act and Rule 13 of the CST (R & T) Rules, which allow goods intended for use in manufacturing, processing, mining, or generation of power to be purchased at concessional rates. The court referred to various judicial pronouncements, including the apex court's decisions in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, and Chowgule & Co. Pvt. Ltd. v. Union of India, which supported the petitioner's contention that goods integrally connected with the production process qualify for concessional rates.

The court concluded that HSD was directly consumed in running mining machinery and cement was used for constructing foundations and installations necessary for mining operations. Thus, both items were integrally related to mining activities. However, the court noted that cement's use was primarily at the initial stages of installation and construction, and its necessity diminished thereafter. Consequently, the court remitted the matter to the Assistant Commissioner to determine the period for which cement should be allowed at a concessional rate.

3. Initiation of Penalty Proceedings under Section 10A of the CST Act:

The petitioner also challenged the initiation of penalty proceedings under Section 10A of the CST Act, arguing that the notice issued was vague and without basis. The court directed the petitioner to file a reply before the Assistant Commissioner, who would decide the matter in light of the court's judgment.

Conclusion:

The court set aside the impugned orders under Annexures 1 and 2, allowing the writ petition to the extent indicated. The Assistant Commissioner was directed to reassess the eligibility of cement for concessional rates based on its use in mining operations. The penalty proceedings under Section 10A of the CST Act were to be decided by the Assistant Commissioner after considering the petitioner's reply. No order as to costs was made.

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