2007 (1) TMI 187 - SC - VAT and Sales Tax

Whether the use of articles or commodities not generally used in the manufacturing process can still be categorized as raw materials for the purpose of concession in the levy of taxes? Held that - To avail the concessional rate of tax under Section 10, the assessee has to satisfy 3 conditions he must be a registered dealer of any raw material;raw material must be used for the manufacture of goods; and the said manufacture in the State should be for the purpose of sale by him within the State or in the course of inter-State trade or commerce or in the course of export outside the territory of India. As the respondent before us satisfy all the above tests and, therefore, the assessee-respondent, in our opinion, shall be entitled to such concessional rate as may be notified by the State Government. The respondent-assessee used diesel as raw material for the manufacture of the end-product, namely, yarn and fabric. The diesel used by the assessee is a fuel and lubricant as defined under Section 2(34) of the Sales Tax Act. Thus the arguments advanced by learned counsel for the appellant has no force and merit. Appeal dismissed.

Issues Involved:
1. Whether diesel can be categorized as a raw material for the manufacture of polyester yarn.
2. Interpretation of Section 10(1) of the Rajasthan Sales Tax Act, 1994, and related notification.
3. Validity of the registration certificate and its implications.
4. Application of the principle of promissory estoppel.
5. Whether the State can retrospectively revoke or amend the registration certificate.

Issue-wise Detailed Analysis:

1. Whether diesel can be categorized as a raw material for the manufacture of polyester yarn:
The primary question addressed was whether diesel, used to generate electricity for manufacturing polyester yarn, qualifies as a raw material. The respondent argued that diesel is a raw material under Section 10(1) of the Rajasthan Sales Tax Act, 1994, which allows for a concessional tax rate. The court examined the definition of "raw material" under Section 2(34), which includes "preservatives, fuel and lubricant required for the process of manufacture." The court concluded that diesel, used to generate electricity for manufacturing, fits within this definition.

2. Interpretation of Section 10(1) of the Rajasthan Sales Tax Act, 1994, and related notification:
Section 10(1) allows a concessional tax rate on raw materials used in manufacturing. The notification under this section specifies a 3% tax rate for raw materials. The appellant argued that diesel, used to produce electricity, is an intermediate product and not directly used in manufacturing polyester yarn, thus not qualifying for the concessional rate. However, the court held that since diesel is used to generate the electricity required for manufacturing, it qualifies as a raw material under the Act.

3. Validity of the registration certificate and its implications:
The respondent's registration certificate listed diesel as a raw material, entitling them to the concessional tax rate. The court emphasized that the registration certificate, granted after due consideration, was valid and binding. The court noted that the certificate had not been canceled, revoked, or modified, thus supporting the respondent's claim for the concessional rate.

4. Application of the principle of promissory estoppel:
The respondent argued that the State could not retrospectively revoke or amend the registration certificate based on the principle of promissory estoppel. The court agreed, stating that the registration certificate is an order, and any rectification or revision must be prospective. The court cited previous judgments supporting the view that once an item is listed as a raw material in the registration certificate, the department cannot later dispute this classification to the detriment of the assessee.

5. Whether the State can retrospectively revoke or amend the registration certificate:
The court held that the State could not retrospectively revoke or amend the registration certificate. The Act provides mechanisms for rectification or revision, but these must be applied prospectively. The court emphasized that the respondent had not violated any conditions and had acted based on the registration certificate's validity.

Conclusion:
The court dismissed the appeal filed by the State, affirming that diesel used by the respondent for generating electricity in the manufacturing process qualifies as a raw material under Section 10(1) of the Rajasthan Sales Tax Act, 1994. The respondent was entitled to the concessional tax rate of 3%. The court upheld the principle of promissory estoppel, preventing the State from retrospectively amending the registration certificate. The appeal was dismissed with no order as to costs.

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