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TMI Blog2016 (8) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... table use of the material in chemical reaction, non-replacability of the said material in chemical reaction, whether this material is participating in a chemical reaction or not, whether oxygen is converted into any other material or not in a chemical reaction (here oxygen is converted into carbon dioxide and carbon monoxide) in L. D. Vessel Operation-second reaction in the manufacturing process of steel. What is to be seen is huge quantity of material added for chemical reaction. These are the guiding factors. If all these tests are applied to the usage of oxygen in second chemical reaction in manufacturing process of steel through BOS method, i.e., in L. D. Vessel Operation, certainly, oxygen is a basic raw material without which steel cannot be manufactured through BOS method. The orders passed by the Deputy Commissioner of Commercial Taxes, Jamshedpur Circle, Jamshedpur, dated October 1, 2011 (annexure 16 to the memo of this petition) relating to financial year 2003-04 is set aside. The oxygen gas sold by this petitioner and purchased by respondent No. 11 is used as a basic raw material in manufacturing process of steel through Basic Oxygen Steel Method. Petition allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. O. C. India Ltd., at the relevant time in the year 2008 preferred a writ petition bearing W. P. (T) No. 4693 of 2005 (B.O.C. India Ltd. v. State of Jharkhand [2009] 21 VST 475 (Jharkhand)). In the said writ petition assessment order passed by the assessing officer under the Bihar Finance Act, 1981 was challenged on the basis of certain notifications, which are as under: (a) Notification dated December 15, 1976; (b) Notification bearing SO No. 604, dated April 12, 1982; (c) Notification bearing SO No. 1096, dated September 9, 1983; and (d) Notification bearing SO No. 154, dated February 3, 1986. Declaration was made by respondent No. 11, M/s. Tata Steel Ltd. under rule 6 of the Bihar Sales Tax Rules, 1983, annexed as annexures A and B. In annexure A the goods which are used as a raw material in manufacturing process of steel through Basic Oxygen Steel Method (hereinafter referred to as BOS method ) have been mentioned whereas in annexure B other materials which are used in manufacturing process of Steel through BOS method have been men tioned. In an application preferred by respondent No. 11M/s. Tata Steel Ltd. having a declaration as required under rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer, who visited the place where steel is manufactured by using oxygen and the members of the said committee were as under: (a) Dr. Bhawani Shankar, Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur; (b) Sri Ranjan Kumar Sinha, Deputy Commissioner, Commercial Taxes, Jamshedpur Circle, Jamshedpur; (c) Sri Yugual Kumar Chanani, Assistant Commissioner, Commercial Taxes, Jamshedpur Circle, Jamshedpur; (d) Sri Ramdeo Prasad Singh, Assistant Commissioner, Commercial Taxes, Jamshedpur, Circle, Jamshedpur; (e) Sri Rajesh Kumar, Commercial Taxes Officer, Urban Circle, Jam shedpur; and (f) Sri Ratan Lal Gupta, Deputy Commissioner, Commercial Taxes, Jamshedpur Circle, Jamshedpur. Aforesaid Committee of six high ranking officers of the State visited the place of manufacturing of steel at Tata Steel Ltd., Jamshedpur, on February 4, 2010, who has given its report, in which the use of oxygen made by respondent No. 11 for manufacturing of steel through BOS method is mentioned. Before the assessing officer, materials have been placed, including the visit report, given by the aforesaid committee and detailed manufacturing process of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38,04,612 (one hund red twenty nine crores, thirty eight lacs, four thousand six hundred and twelve) has been sold by this petitioner and purchased by respondent No. 11 for manufacturing of steel through BOS method. Arguments canvassed by counsel for the petitioner: Counsel for the petitioner submits that the petitioner (who was formerly known as M/s. B. O. C. India Ltd.) has been selling oxygen gas to respondent No. 11-M/s. Tata Steel Ltd., which uses the same as essential raw material for manufacturing of steel through B. O. S. method. This aspect of the matter has not been properly appreciated by the authorities concerned under the Bihar Finance Act, 1981. In the earlier round of litigation the petition preferred by the petitioner in the name and style of M/s. B. O. C. India Ltd., was dismissed on the ground that this petitioner had no locus standi. The locus standi has been approved by the honourable Supreme Court, as per reported decision in the case of BOC India Ltd. v. State of Jharkhand [2009] 21 VST 490 (SC); [2009] 15 SCC 590, especially paras 20 and 21 thereof. Therefore, this petition has been preferred by this petitioner challenging the orders, passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there may be a manufacturing process, stage-wise, i.e., initially oxygen might not have been added in the Furnace, but, there may be an addition of oxygen at a later stage of manufacturing process. Counsel for the petitioner has explained in detail the manufacturing process of steel through BOS method and it is submitted that a stage will come when pig iron will be manufactured, which is having approximately four per cent. of carbon and now the oxygen is being added to remove the carbon so that A+B=C (Pig iron + Oxygen Gas = Steel) (manufacturing process through BOS method). It is submitted by counsel for the petitioner that every manufacturing is not over in one reaction. There may be chain of reactions in manufacturing process. There can be further addition of the basic raw material in second reaction or third reaction also. Thus, C+D=E and after E is evolved in manufacturing process, there may be a need of addition of further raw material. This is how in the last chain of reaction, i.e., in pig iron, oxygen gas is added which gives final product, i.e., steel. In fact, oxygen is being added through high pressure injectors. Pressure, etc., has to be maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is a very complex process. In first stage there may be addition of certain raw materials and at a later stage, there will be further addition of the raw materials, but, the fact remains that without addition of oxygen, through high pressure injectors in a highly sophisticated furnace where liquid pig iron is present, carbon cannot be separated. Carbon can be separated after reacting with oxygen gas and left out product is known as steel and carbon is converted into carbon monoxide and carbon dioxide. Other products may also come out during this process like P2O5, etc. We are not concerned with CO, CO2, P2O5, etc. It is submitted by counsel for the petitioner that without there being use of oxygen as a raw material, steel cannot be manufactured. This aspect of the matter has not been properly appreciated by all the authorities under the Bihar Finance Act, 1981 and hence, this writ petition has been preferred. It is further submitted by counsel for the petitioner that merely because respondent No. 11 has filed a declaration in an application under rule 6 of the Bihar Sales Tax Rules, 1983, inadvertently stating therein that oxygen is one of the goods used in ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bihar Finance Act, 1981 and hence, the orders impugned may be quashed and set aside and oxygen sold by this petitioner and purchased by respondent No. 11 may be declared as raw material , used by respondent No. 11 for manufacturing of steel through BOS method. Counsel for the petitioner has placed reliance on a decision rendered by the honourable Supreme Court in the case of Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd. reported in [1990] 77 STC 282 (SC); [1990] 186 ITR 244 (SC); [1989] 4 SCC 566, as, especially upon paragraph Nos. 13 to 19 thereof and has submitted that in manufacturing process of paper, sodium sulphate (Na2SO4) is used by the manufacturer as a basic raw material. In detail, reasons have been given by the honourable Supreme Court in the aforesaid paragraphs. If the same analogy is applied in the facts of the present case, the case of this petitioner stands on better footing. Oxygen is used in manufacturing of steel through BOS method, in a huge and large quantity and oxygen itself is changing its physical and chemical properties, while reacting with the reactants, i.e., pig iron and is converting pig iron into steel and converting carbon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. These aspects of the matter have not been properly appreciated by the authorities under the Bihar Finance Act, 1981 and, hence, all the earlier orders passed by the assessing officer, appellate authority and revisional authority may be quashed and set aside and it may be declared that oxygen gas used by respondent No. 11 in manufacturing of steel through BOS method is a basic raw material and hence, upon sale of oxygen only two per cent. of sales tax is leviable instead of three per cent. It is further submitted by counsel for respondent No. 11 that for sub sequent assessment years, oxygen has already been treated as basic raw material, used in manufacturing process of steel through BOS method by the assessing officer, i.e., for assessment years 200910 onwards. Arguments canvassed by the State of Jharkhand: Counsel for respondent Nos. 1 to 10, i.e., State authorities submitted that the use of oxygen in manufacturing process of steel through BOS method is not denied, but, the oxygen is not used as a raw material. Oxygen is utilized as one of the commodities or goods in the manufacturing process of steel through BOS method and all the goods which are used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing of steel and, therefore, oxygen is mentioned in annexure B. As such, no error has been committed by the authorities under the Bihar Finance Act, 1981 to treat oxygen as goods, required directly for usage in manufacturing process of steel instead of goods used as raw material in manufacturing process. Counsel for the respondent State has also relied upon analogy given in the order passed by the assessing officer dated October 1, 2011 that in manufacturing process of hydrogen gas or oxygen gas through electrolysis of water always H2SO4 is being added. Merely because H2SO4 is essential, that does not mean that it is a raw material. If this analogy is applied to the oxygen in manufacturing of steel, then oxygen is not a basic raw material, but, it will be one of the goods used in the manufacturing process. If any goods used in manufacturing process is not a raw material, then sales tax leviable upon the sale of the said goods will be at three per cent., but, if any goods used in manufacturing process is raw material, then the sales tax leviable upon said goods will be only two per cent. In the facts of the present case, oxygen is used only as a refining a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the respondent State authority dated October 10, 2011 (annexure 15 to the memo of this writ petition), mainly for the following facts, reasons and judicial pronouncements: (i) One of the notifications, which has been relied upon by the coun sel for both sides repeatedly, is dated December 15, 1976, second is dated April 12, 1982, third is dated September 9, 1983 and fourth one is dated February 3, 1986. These notifications are as under: (1) Notification dated December 15, 1976; (2) Notification bearing SO No. 604 dated April 12, 1982; (3) Notification bearing SO No. 1096 dated September 9, 1983; and (4) Notification bearing SO No. 154 dated February 3, 1986. (ii) It has been argued by counsel for both sides that under the Bihar Finance Act , 1981 to be read with the aforesaid notifications if any goods is used other than raw materials in the manufacturing process, it will fetch three per cent. of sales tax upon the sale of such item, whereas if any goods is used as a raw material in manufacturing process, the sale thereof will fetch two per cent. of the sales tax under section 13(1)(b) of the Act, 1981 to be read with the aforesaid notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the locus standi in favour of this petitioner. Thus, to the aforesaid extent, the decision of this court was quashed and set aside. The observations about grant of locus standi to this petitioner are at paragraph Nos. 20 and 21 thereof, which read as under (paras 22 and 23, pages 500 and 501 in 21 VST): 20. BOC admittedly is the manufacturer of oxygen gas. It is a 'dealer' within the meaning of the provisions of the Act being a supplier of its product. It, thus, comes within the purview of 'dealer' as contained in section 2(e) of the Act as it carries on the business of buying, selling, supplying or distributing goods for cash or for deferred payment or for commission, remuneration or other valuable consideration. It is an assessee. It, even as an agent of the State, is bound to collect taxes on the State's behalf and deposit the same in accordance with law. Noncompliance therewith would lead to penal actions. Even in the demand made by the Deputy Commissioner, Commercial Taxes, Jamshedpur Circle, Jamshedpur dated July 22, 2005, it was threatened with proceedings for recovery of the differential amount unless it produced the evidence of dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see itself must bring on record sufficient materials to show that it comes within the purview of the notification. Both in Collector of Central Excise v. Ballarpur Industries Ltd. [1990] 77 STC 282 (SC); [1990] 186 ITR 244 (SC) and Tata Engineering Locomotive Company Ltd. v. State of Bihar [1995] 96 STC 211 (SC) the question as to whether sodium sulphate and/or batteries, tyres, tubes were raw materials or not could be determined by this court as such a question had been raised by the assessing authority. 32. For the selfsame reasons, we are of the opinion, that it is not necessary to go into the question as to whether a person even if he proves that he inadvertently did not claim the benefit of a notification would depend upon the facts and circumstances of each case as no such rule in absolute terms can be laid down therefor. We may, however, notice that this court in Share Medical Care v. Union of India [2007] 4 SCC 573 has opined as under (SCC page 577, para 15): '15. From the above decisions, it is clear that even if an applicant does not claim benefit under a particular notification as the initial stage, he is not debarred, prohibited or estopped from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ig iron. This has also been incorporated in the order passed by the assessing officer dated October 1, 2011 whereas the petitioner and respondent No. 11 have con tended that looking to the manufacturing process of steel through BOS method, oxygen is used as an essential raw material in manufacturing process and, therefore, this court will narrate from the documents on record what is the manufacturing process of steel through BOS method. (viii) Narration of manufacturing process of steel through BOS method: Before we narrate the manufacturing of steel through BOS method, it ought to be kept in mind that manufacturing process may take place through more than one chemical reaction. Iron ore (hematite) is not available in its pure form in the nature. It is always available in compound form, known also as oxides. These oxides are containing several other impurities. Iron ore is mainly known as Fe203. There are other oxides also. Oxygen has to be removed at the initial stage, which is known as reduction process , for which a blast furnace is required. This blast furnace is charged with coke, iron ore, etc., and the hot air along with low pressure pure oxygen is injected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In short oxygen gas cannot be replaced by any other material, which is available on this earth, in the form of element, to convert pig iron into steel through BOS method. This is the importance of usage of oxygen in second reaction of manufacturing process, which is also known as L. D. Vessel Operation. (xi) Thus, oxygen is used in a very huge and large quantity in second chemical reaction for manufacturing of steel through BOS method. Moreover, usage of oxygen is inevitable. The usage of oxygen is not replaceable by any other element. The usage of oxygen is must in second chemical reaction, for manufacturing of steel which is also known as L. D. Vessel Operation. The function of oxygen in second chemical reaction is to convert pig iron into steel, by reducing the percentage of carbon by converting carbon into carbondi-oxide (CO2) and carbon monoxide (CO). Merely because oxygen is reducing the percentage of carbon, it cannot be labelled by the State of Jharkhand that oxygen is used only as refining agent . Looking to the orders passed by the assessing officer, appellate authority and revisional authority-Commercial Taxes Tribunal, it appears that they all have nar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) In the blast furnace what is added is iron ore, coke, silicon and flux and hot air with low pressure of pure oxygen. All these are injected in blast furnace. Iron ore is normally iron oxides, i.e., Fe2O3. In this blast furnace reduction takes place. There are a very complex chemical reactions in this blast furnace. Several other oxides are also reduced with which we are not concerned. Thus, in a blast furnace, added raw materials are, iron ore, coke, etc., but these are not the only raw materials. Second stage of manufacturing process of steel, is yet to come. (d) In second stage of reaction for manufacturing of steel, through BOS method, what is obtained from blast furnace (known as molten iron-pig iron ) will now have further reaction in L. D. Vessel Operation . Here again there will be another type of furnace. Here huge quantity of oxygen is being utilized as a raw material. This oxygen has to be added in L. D. Vessel Operation and that too in a huge quantity. In second chemical reaction pig iron will be normally in semi liquid state for any effective reaction with the oxygen gas in L. D. Vessel. It is injected with high pressure. Typical types of nossals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressure not only reduces the percentage of carbon from pig iron, but, it also generates heat which is also must in L. D. Vessel Operation. There are several other impurities in pig iron. The multipurpose use of oxygen is to react with pig iron and to give steel. One of the usages of oxygen is to reduce the percentage of carbon. All the authorities under the Bihar Finance Act, 1981 have looked at the usage of oxygen only for one purpose, i.e., reduction of carbon percentage. This is an error apparent on the face of the record. Even otherwise also, if refining agent is used in large quantity and its use is inevitable and non replaceable, in such circumstances, even the refining agent is a basic raw material. Raw material and refining agent are not mutually exclusives nor they are opposites to each other, i.e., if a refining agent is used, it cannot be labelled as a raw material and if the raw material is used it cannot be labelled as a refining agent. This is a wrong notion in the mind of the authorities who have passed the orders, which are under challenge in this writ petition. Even a refining agent can be a basic raw material. What is to be seen, is the import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufac ture of any end-product might comprise, amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the endproduct; those which , as a result of interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end-product; those which, like catalytic agents, while influencing and accelerating the chemical reactions, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end-products and those, as here, which might be burnt up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called 'raw material' for the end-product. One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical processes culminating in the emergence of the desired end-product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As stated herein above, both these terms are not mutually exclusive or opposites to each other. Even a refining agent can also be a raw material if the aforesaid criteria are fulfilled, as stated in para (xiii), in detail. (xv) It has been contended by counsel for the respondent-State that under the Central Sales Tax Act for giving benefit of Form C, etc., it has been mentioned that in steel manufacturing process the raw materials are coke, hematite, i.e., iron ore, etc., and oxygen is not referred to as raw material and, therefore, in the facts of the present case also, the oxygen cannot be treated as a raw material. The above contention is not accepted by this court, mainly for the reason that Central Sales Tax Act never prescribes or confines certain raw material for manufacturing of steel. If we look at annexure R11/A annexed with the reply filed by respondent No. 11, in reply to the counteraffidavit filed by the respondent-State authority, it appears that the circular issued by the Central Government is only by way of illustration. In the said circular, they have also mentioned about other raw materials, given in the said list, for manufacturing of st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be the methodology of manufacturing of steel is always left at the discretion of the manufacturer; (b) Here the steel is being manufactured by Tata Steel Ltd. through BOS method and the same cannot be changed by the State Government. (c) What is to be seen by this court and by all the authorities is whether in manufacturing process selected by the manufacturer, the use of oxygen is inevitable or not ? Whether the use of oxygen is replaceable or not ? Whether oxygen itself is participating in chemical reaction or not (in contrary to the inactive substance like catalyst) ? What is to be seen, is quantity of the material used (here very huge and large quantity of oxygen is used) ? What is to be seen, is whether oxygen can be replaced by any other element available from the whole periodic table ? What is to be seen, is whether without oxygen, pig iron can be converted into steel or not ? (d) If the method of manufacturing is changed as suggested by coun sel for the State, it is but obvious that the raw material will be changed. Raw material always depends upon method of manufacturing, e.g., phenol can be manufactured by half a dozen different methods, i.e., it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined. It has to be given its meaning as is understood in the common parlance of those who deal with the matter. Oxygen gas when used would admittedly be burnt up. Would it mean that it ceases to be a raw material is the question ? (emphasis1 supplied) (b) Thus, in view of aforesaid paragraph No. 24 (paras 26 and 27 in 21 VST 490) of the decision rendered by honourable Supreme Court, the word raw material is to be understood in a common parlance of those who deal with the matter. If we ask any common man who has nothing to do with any manufacturing process of steel then he may give any other answer, but, this is not a test at all. Common parlance is to be used of the persons, who are dealing with manufacturing of steel and if those persons are narrating oxygen as a raw material, it will be one of the factors for arri ving at the conclusion, otherwise, we have already pointed out weighing factors in para (xiii) of this judgment. (c) As stated hereinabove what is to be seen by this court, is inevitable use of the material in chemical reaction, non-replacability of the said material in chemical reaction, whether this material is participating in a chemical reacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. as per section 13(1)(b) of the Bihar Finance Act, 1981 read with Notification bearing S. O. 154, dated February 3, 1986. W. P. (T) No. 1939 of 2015 with W. P. (T) No. 1940 of 2015 with W. P. (T) No. 1941 of 2015: The writ petition bearing W. P. (T) No. 1939 of 2015 is for the assessment year 200203 whereas W. P. (T) No. 1940 of 2015 is for the year assessment year 200405 and W. P. (T) No. 1941 of 2015 is for the assessment year 200506. This is the only change, otherwise there is no change in the manufacturing process, in the usage of oxygen gas, nor there is any change in the facts and law. Therefore, in all the aforesaid writ petitions also, the orders, passed by the assessing officer, the appellate authority and the revisional authority as also the demand notice in different appeals, revision applications preferred by this petitioner, as stated herein above, are hereby quashed and set aside and in these cases also, the amount already deposited by respondent No. 11 shall be adjusted towards the future tax liability or towards other financial liability of the petitioner, as stated herein above. I. A. No. 3604 of 2015 in W. P. (T) No. 1929/15 with I. A. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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