2016 (4) TMI 717 - HC - VAT and Sales Tax

Classification - Whether the pet coke used in the manufacture of cement is raw material as contended by the dealer, or fuel as contended by the appellant - Held that - it appears that the pet coke used in the manufacture of cement, during the course of the manufacturing process gives rise to an exothermic reaction, as a result whereof it loses its apparent identity and forms part of the end product. Essentially, therefore, pet coke forms one of the ingredients of cement and merely because there is an exothermic reaction in the preparation of cement which may be facilitated by its presence, pet coke would not cease to be a raw material. As regards the submission that the appeal against the decision of the Tribunal in the case of M/s Welspun Steel Ltd. v. The State of Gujarat has been admitted on a substantial question of law and the Tribunal having placed reliance upon such decision, this appeal also deserves to be admitted on a similar question of law, it may be noted that the Deputy Commissioner in the assessment order has categorically recorded that the said decision would not be applicable to the facts of the present case. Similarly, the first appellate authority, viz. the Joint Commissioner of Commercial Tax has also held that the decision in the case of M/s Welspun Steel Ltd. cannot be made applicable to the present case as the same relates to the use of pet coke in the manufacture of sponge iron. Therefore, it appears that it was the case of the Department that the decision of the Tribunal in the case of M/s Welspun Steel Ltd. would not be applicable to the facts of the present case, under the circumstances, merely because the appeal preferred by the State against the said order of the Tribunal has been admitted on a question of law, does not mean that the present appeal is also required to be admitted on a similar question of law, despite the fact that the impugned order does not give rise to a substantial question of law. The Tribunal, after appreciating the material on record, has found as a matter of fact that coke/pet coke used in the VSK technology is not used as a fuel but as part of feed stock and its components form part of the product, that is, clinker and that without this raw material, the product clinker cannot be manufactured. It is not the case of the appellant that the findings of fact recorded by the Tribunal are, in any manner, perverse to the record of the case, inasmuch as, no question on the ground of perversity has been raised by the appellant. On the facts as found by the Tribunal, the decision of the Supreme Court in the case of Union of India v. Ahmedabad Electricity Co. Ltd. 2003 (10) TMI 47 - SUPREME COURT OF INDIA would be squarely applicable and therefore, the pet coke used in the manufacture of clinker clearly falls within the ambit of the expression raw material as contemplated in section 2(19) of the GVAT Act. The Tribunal, therefore, did not commit any error in holding that pet coke is not used as fuel but is used as raw material in the manufacture of cement. The impugned order, therefore, does not suffer from any legal infirmity. - Decided in favour of respondent

Summary

Issues Involved:
1. Whether the Tribunal erred in holding that petroleum coke was not used as fuel in the process of manufacturing cement as per section 11(3)(b)(iii) of the GVAT Act.
2. Whether the Tribunal erred in deleting the levy of interest and penalty.

Detailed Analysis:

1. Use of Petroleum Coke in Manufacturing Cement:
The primary issue was whether petroleum coke (pet coke) used in the manufacture of cement should be classified as 'fuel' or 'raw material' under the Gujarat Value Added Tax Act (GVAT Act). The appellant, the State of Gujarat, contended that pet coke is used as fuel, which should reduce the tax credit by 4% as per section 11(3)(b)(iii) of the GVAT Act. Conversely, the respondent argued that pet coke is a raw material essential for the manufacturing process.

Statutory Provisions:
- Section 2(19) of the GVAT Act defines "raw materials" as goods used as ingredients in the manufacture of other goods, excluding fuels for electricity generation.
- Section 11 provides for tax credit, with subsection 11(3)(b)(iii) specifying a reduction in tax credit for fuels used in manufacturing.

Tribunal's Findings:
The Tribunal found that in the Vertical Shaft Kiln (VSK) technology used by the respondent, pet coke is mixed with other raw materials (lime stone, silica, red oxide, and bauxite) and forms part of the feedstock. It concluded that pet coke is not used as fuel but as a raw material, as its chemical components become part of the clinker, a semi-finished product in cement manufacturing.

High Court's Analysis:
The High Court referred to the Supreme Court's decision in Union of India v. Ahmedabad Electricity Co. Ltd., which distinguished between raw materials and fuels. The Court noted that a raw material should ultimately get a new identity in the end product, either on its own or in conjunction with other raw materials. The Court found that pet coke, even if consumed or burnt up in the manufacturing process, remains a raw material as it is essential for producing clinker.

The Court also noted that the Tribunal's findings were based on the specific manufacturing process adopted by the respondent and were not perverse or contrary to the record.

2. Deletion of Interest and Penalty:
The Tribunal had also set aside the levy of interest and penalty imposed by the Deputy Commissioner of Commercial Tax. The appellant argued that since pet coke was used as fuel, the respondent was not entitled to input tax credit, justifying the interest and penalty.

Tribunal's Findings:
The Tribunal, having concluded that pet coke was a raw material and not fuel, found no basis for the interest and penalty imposed.

High Court's Analysis:
The High Court upheld the Tribunal's decision, finding no legal infirmity in its conclusion that pet coke is a raw material. Consequently, the deletion of interest and penalty was justified.

Conclusion:
The High Court dismissed the appeals, affirming the Tribunal's decision that pet coke used in the manufacture of cement is a raw material and not fuel. The Tribunal's order to delete the levy of interest and penalty was also upheld. The judgment emphasized the importance of the specific role and chemical transformation of materials in the manufacturing process to determine their classification under tax laws.