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TMI Blog2008 (10) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... e, ore concentrate or a titanium slag is heated at elevated temperatures, with concentrated sulphuric acid to form a porous cake, sometimes referred to in the art as "digestion cake". The digestion cake is allowed to cure so as to effect maximum recoveries of titanium values upon dissolving. After curing, the cake is dissolved in water or weak acid, with agitation to form a solution of titanium sulfate and iron sulfates. The ferric sulfate values in the solution are converted to ferrous sulfate by the addition, to the solution, of a reducing agent, such as scrap iron with or without antimony oxide. The solution is then clarified by settling and filtration to remove all of the solid material contained in the solution with minimum loss of TiO2. Following clarification, the solution is then usually subjected to a crystallization step to remove most of the ferrous sulfate values as copper as, i.e., FeSO4 7H2O. After crystallization, the titanium sulfate solution is subjected to concentration to remove water from the solution. This is accomplished by evaporation in concentrators which operate under vacuum and at elevated temperatures. Concentration is continued until the specific gravit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alts. This cake is incinerated in calciner (kiln) using super kerosene oil. Therefore, the sale of industrial raw material, namely, kerosene, by a registered dealer to the appellant for use in the production of the finished product, namely, titanium dioxide, inside the State for sale is taxable at the concessional rate of tax at three per cent on production of declaration to that effect from the appellant who uses the same for the declared purpose as provided under section 5(3) of the KGST Act. The Commissioner of Commercial Taxes by his order No. C3.1224/04/ CT dated October 26, 2005 has clarified that form 18 cannot be issued for purchase of kerosene oil for use as fuel in the manufacture of titanium dioxide. According to the Commissioner of Commercial Taxes, "In the instant case, the role of kerosene is for the process of calcination. Even according to the petitioner, the contributing factor of kerosene is heat energy. In other words, the function is that of the fuel. Thus, kerosene in this case, cannot be treated as a raw material used in the manufacture of goods, but as aid in the manufacture of goods." The appellant being aggrieved by the aforesaid clarification is before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the apex court in the case of Coastal Chemicals Ltd. v. Commercial Tax Officer, A.P. [2000] 117 STC 12. In our opinion, having heard the learned counsel for the parties, the one and the only issue that requires to be considered is, whether the appellant is entitled to issue form 18 declaration forms for the purpose of purchase of kerosene oil which is used as a fuel for the process of calcination in the kiln used in the production of finished product, namely, titanium dioxide. We need to start our discussion on this legal issue by referring to charging provision under the Act and the provision which provides for concessional rate of tax. Section 5(1) of the Act is the charging provision under the Act. It provides that every dealer, other than a casual trader or agent of a nonresident dealer, whose total turnover for a year is not less than two lakh rupees and every casual trader or agent of a non-resident, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year. Section 5(3) of the Act provides for concessional rate of tax under certain circumstances. The said provision reads as under: "5(3)(i). Notwithstanding anything containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to encourage industries to procure the raw materials, component parts, containers or packing materials at a concessional rate of tax, so that the cost of production of the finished product would be less and the industrial unit would be in a better position to compete in the market by reducing the sale price of the finished product. In the instant case, we are concerned with only "industrial raw material". The said expression is not defined in the Act. Therefore, reference can be made to the dictionary meaning and also to how the courts have understood this expression. The expression "industrial raw material" is used to denote raw materials used for industrial purpose. According to the dictionary meaning, it means something which is used for manufacturing or producing the goods. The ordinary commonsense understanding of it is that, it is something from which another new or distinct commodity is produced. The Supreme Court has explained the meaning of this expression. In the case of Collector of Central Excise v. Ballapur Industries Ltd. [1990] 77 STC 282; [1990] 186 ITR 244, it is stated that an input or ingredient, getting burnt up or consumed in the chemical process of manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is formed. The mass in the solid form is dissolved in dilute sulphuric acid to get titanium in solution as titanium oxy-sulphate along with other metallic ingredients in ilmenite as their sulphate. After this digestion process, the next is known as "reduction". At this stage, the liquor is reduced using scrap iron, when the ferric iron gets completely reduced to ferrous state. The third stage is known as "clarification". In this stage, the black liquor is clarified, concentrated and boiled by injecting steam to precipitate the titanium content as hydrated titania. Then, the other stages are crystallization, hydrolysis and filtration. During these stages, the hydrated titania is filtered over drum-type rotary vacuum filters. Any ferric iron still present is reduced to ferrous iron by leaching the pulp with dilute sulphuric acid. It is washed free of iron and other impurities. The last stage is "calcination". During this stage, the hydrated titania is calcined in a rotary kiln and superior kerosene oil is used in the calciners as fuel and thereafter is cooled in rotating coolers and de-agglomerated in pendulum mills to very fine particles. The fine white powder is packed and sold i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; have been expressly referred to in the said provision, though they would fall within the broader scope of the words 'raw materials'. 7.. In the case of Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) relied upon in the impugned judgment, it was held that cashew shells used as fuel did not get consumed in the manufacture of other goods and that 'consumption must be in the manufacture as raw material'. 8.. To use the words of Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) the natural gas used by the appellant does 'not tend to the making of the end-product'. It is not a 'consumable'." In the instant case also, 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". We have perused carefully the other case laws on which reliance was placed by the learned senior counsel Dr. Mohammed Kutty. In our opinion, none of the case laws has any bearing on the issue which has come up for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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