2021 (8) TMI 1011 - HC - VAT and Sales Tax

Input Tax Credit - Coal is a raw material for manufacturing of cement or not - rejection of the report of a technically qualified person or not - applicability of decision in the case of COLLECTOR OF C. EX. VERSUS BALLARPUR INDUSTRIES LTD. 1989 (9) TMI 102 - SUPREME COURT - HELD THAT - In the present case, the coal is used not merely as a fuel but when it gets burnt up in the process of preparation of clinker, it produces coal ash which gets absorbed by clinker. Clinker is a raw material goes into the composition of cement. The report of the Senior Manager (Technical) of the Petitioner which was available with the ACST, explained the use of coal as a raw material in the manufacture of cement. It was pointed out that clinker cannot be produced without coal and the cement cannot be produced without clinker. This makes coal a vital and necessary raw material for manufacturing cement. This Court in M/S. NATIONAL ALUMINUM COMPANY LIMITED, VERSUS DEPUTY COMMISSIONER OF COMMERCIAL TAXES, BHUBANESWAR-III, CIRCLE, 2012 (11) TMI 835 - ORISSA HIGH COURT where the question was whether coal, alum, caustic soda and other consumables used as inputs for manufacturing of aluminum, aluminum ingots and sheets would enable the Petitioner in that case to avail input tax credit on such inputs. That question was answered in the affirmative in favour of the said Petitioner. The Court concludes that in the present case, the coal used in the process of manufacture of cement is indeed an input within the meaning of Section 2(25) of the OET Act and therefore qualifies for input tax credit as claimed by the Petitioner - the Tribunal erred in holding that the coal is not a raw material for manufacturing cement - the Tribunal erred in coming to the conclusion that coal could not be treated as a raw material vis- -vis the finished product i.e. cement. Revision petition disposed off.

Summary

Issues:
1. Interpretation of whether coal is a raw material for manufacturing cement.
2. Determining the eligibility of coal for input tax credit under the Orissa Entry Tax Act.

Analysis:
1. The judgment involved two revision petitions challenging an order by the Orissa Sales Tax Tribunal regarding the classification of coal as a raw material for cement manufacturing. The Tribunal had rejected the petitioner's claim of set off under the Orissa Entry Tax Act, leading to the petitions. The main issue was whether coal, used in the process of manufacturing cement, qualifies as a raw material. The Tribunal had concluded that coal was not a raw material for cement production, which was contested by the petitioner.

2. The court analyzed the concept of raw material in manufacturing processes, citing the Supreme Court's decision in Collector of Central Excise v. Ballarpur Industries Ltd. The court emphasized the importance of an ingredient in the manufacturing process, even if it is consumed or burnt up, to be considered a raw material. The petitioner argued that coal, when burnt in the kiln, produces coal ash that becomes part of the clinker, an intermediate product in cement production. The court also referred to a previous case where coal used for manufacturing electricity was not considered a raw material, distinguishing it from the current scenario.

3. The court examined the definition of "input" under the Orissa Value Added Tax Act, which equally applies under the Orissa Entry Tax Act. It referred to a case involving the manufacturing of aluminum, where various consumables were considered as inputs for availing input tax credit. The court highlighted the essentiality of coal in the cement manufacturing process, as explained by a technical report submitted by the petitioner. The report clarified that coal is indispensable for producing clinker, a crucial component in cement production.

4. Relying on legal precedents, including decisions by the Supreme Court and previous Orissa High Court judgments, the court concluded that coal used in the cement manufacturing process qualifies as an input under the Orissa Entry Tax Act. The court held that the Tribunal erred in its classification of coal and granted the petitioner's claim for input tax credit on coal purchases. The impugned orders of the Tribunal, Assistant Commissioner of Sales Tax, and Sales Tax Officer were set aside, and the revision petitions were disposed of in favor of the petitioner.