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TMI Blog2010 (11) TMI 867X X X X Extracts X X X X X X X X Extracts X X X X ..... OVAT Act and the CST Act. The petitioner also challenges the initiation of penalty proceeding under section 10A of the CST Act issued by O.P. No. 2 vide notice dated August 10, 2006 for the period April 2005 to March, 2006 (annexure 3). Shorn of unnecessary details, the facts and circumstances giving rise to the present writ petition are that the petitioner is a public limited company registered under the Companies Act, 1956. It is engaged in the business of extraction of mineral ore from the leasehold mines, processing of such ore in the crusher owned by it and selling of the processed materials inside and outside the State of Orissa. The petitioner was a registered dealer under the OST Act and the CST Act bearing Registration Nos. KJB-28 and KJCB-116 with effect from March 28, 1953 and July 1, 1957, respectively. On the introduction of the OVAT Act, 2004, the petitioner has been registered under the said Act. Under the above registration certificates, the petitioner was entitled to purchase HSD for its use as fuel/consumable directly in mining machineries and cement to utilize directly in the construction of mining and processing project and installation of machineries for manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the petitioner is a processing unit as defined under section 2(28) of the OVAT Act and it is consuming HSD as fuel/consumable to run the mining machinery. Without using cement, the machineries used for the mining process cannot be installed and operated. Under rule 67(4), if a registered dealer engaged in manufacturing or processing of goods intends to claim input-tax credit, he shall maintain the books of accounts prescribed under the said rule. In the instant case, HSD and cement are expedient for extraction and processing of minerals which are directly used in the machineries related to mining activities. In support of his contention, he relied upon a decision of the apex court in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563 (SC); AIR 1965 SC 1310. Similarly, placing reliance on section 8(3)(b) of the CST Act and rule 13 of the CST (R & T) Rules and letter No. F-9(88)-ST/57 dated November 12, 1958 issued by the Government of India, Ministry of Finance, Mr. Mohanty submitted that HSD and cement are coming under the heads "fuel" and "construction materials", respectively and therefore the said items should not be deleted on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. HSD and cement cannot avail of inputtax credit under the OVAT Act. In the instant case, cement and HSD are neither considered as raw materials nor can be considered as capital goods used for manufacturing of goods for sale. Placing reliance on section 8(3)(b) of the CST Act and rule 13 of the CST Rules, it is submitted that the opposite parties after careful consideration of all the relevant provisions of the OVAT Act and the CST Act have come to the conclusion that HSD and cement cannot be used as raw materials for manufacturing/processing of finished product of the petitioner. Therefore, the opposite parties have rightly deleted the said items from the registration certificates to save loss to State exchequer. The present case is squarely covered by the judgment of this court in Orient Paper Mills v. State of Orissa [2007] 10 VST 547 (Orissa) wherein this court directed the petitioner to pay differential tax under section 10A of the CST Act. It is alternatively argued that in the mining process, cement is required at the initial stage of processing for installation of the machinery. Thereafter, same is not at all required. Since initial stage of mining operation had been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the sales tax law of that State, whichever is lower. . . . (3) The goods referred to in clause (b) of sub-section (1)- (a) . . . (b) . . . are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or (in the telecommunications network or) in mining or in the generation or distribution of electricity or any other form of power." Rule 13 of the CST (R & T) Rules: "The goods referred to in clause (b) of sub-section (3) of section 8, which a registered dealer may purchase, shall be, goods intended for use by him, as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power." Perusal of the provisions contained in section 8(3)(b) and rule 13 quoted above, makes it clear that in order to qualify for specification under section 8(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. It appears that the process of mining ore and manufacture with the aid of ore copper goods is an integrated process and there would be no ground for exclusion from the vehicles those which are used for removing goods to the factory after the mining operations are concluded. Nor is there any ground for excluding locomotives and motor vehicles used in carrying finished products from the factory. The expression 'goods intended for use in the manufacturing or processing of goods for sale' may ordinarily include such vehicles as are intended to be used for removal of processed goods from the factory to the place of storage. If this be the correct view, the restrictions imposed by the High Court in respect of the vehicles and also the spare parts, tyres and tubes would not be justifiable. We are, therefore, of the opinion that the Corporation was entitled to specification as set out in the petition and explained in annexure B2 to the petition in respect of items (i), (ii) and (vi)." The honourable Supreme Court in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563 (SC); AIR 1965 SC 1310 considering the scope of section 8(3)(b) has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Excise, Meerut [1990] 76 STC 312 (SC), while dealing with the term "manufacture", their Lordships have held that term "manufacture" includes any process incidental or ancillary to the completion of a manufactured product. The apex court in Chowgule & Co. Pvt. Ltd. [1981] 47 STC 124 (SC) held that where a dealer is engaged in mining operation and also in processing of mineral ore the item required for the said purpose could not be excluded from consideration. Similarly, once again the honourable Supreme Court in Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd. [1990] 77 STC 282 (SC), has held that for an item to qualify as raw material, it need not necessarily and in all cases go into, and be found, in the end-product. Merely because this ingredient was consumed and burnt up in the course of chemical reactions it did not ipso facto cease to be a raw material. Keeping in view the above statutory provisions and settled legal position, it is to be ascertained as to whether the "cement" and "HSD" purchased by the petitioner are integrally related to the activities of mining and process of mining ore. It is also necessary to apply the "functional test" to find ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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