Case Law Details
State of Jharkhand Vs Linde India Limited (Supreme Court of India)
Whether oxygen which is used in the production of steel can be said to be a raw material and thus eligible for concessional rate of tax @ 1% instead of normal rate of 3% under the Bihar Finance Act.
An interesting issue arose in this case where Linde India Limited claimed that the oxygen which is supplied by it to Tata Steel limited for production of steel is a raw material and is thus eligible for the concessional rate of tax @ 1% which was applicable in respect of a raw material. As against this the department on the basis of the report of an expert committee which was constituted in pursuance of 1st round of litigation which travelled upto Supreme Court, contended that the oxygen was only a refining agent and not a raw material and thus the concessional rate was not applicable.
The Supreme Court while hitting hard on the high court for having entertained writ petition even though the expert committee had given a finding that the oxygen was not a direct raw material, allowed the SLP of the State by holding that the oxygen was not a raw material for production of the steel.
While holding so that the court dealt with the process of production of steel and also distinguished judgements cited by Senior Advocate Mr S Ganesh who appeared on behalf of the Respondents.
This judgement will be of help in dealing with similar issues in the context of GST
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Feeling aggrieved and dissatisfied with the impugned common judgment and order dated 03.08.2015 passed by the High Court of Jharkhand at Ranchi in Writ Petition Nos. 1929 of 2015 and other allied writ petitions, preferred by the respondents, by which the High Court has allowed the said writ petitions and has quashed and set aside the order dated 30.03.2015 passed by the Commercial Taxes Tribunal, Ranchi and has also interfered with the concurrent findings of fact recorded by the three authorities and has also quashed the demand notice, holding that the respondents are entitled to benefit of concessional rate of duty at 2% as the use of oxygen can be said to be a “raw material” for the purpose of end product of steel, the State of Jharkhand and other authorities have preferred the present appeals.
2. The facts leading to the present appeals in nutshell are as under:
A certificate (Form VI-B) under Section 6 of the Bihar Finance Act, 1957 was issued in the name of erstwhile India Oxygen Limited, which was subsequently re-named as Linde India Limited. The State Government vide notification dated 12.04.1982 under Section 13(1)(b) of the Bihar Finance Act, 1981, notified a special rate of tax at 1% for “raw material inputs”. However, the rate of tax for other than “raw material inputs” continued at 3%. A certificate (Form VI-B) under Section 8 of the Bihar Finance Act, 1981 was issued in the name of respondent No.2 herein – M/s Tata Iron and Steel Company (for short, ‘Tata Steel’). As per Annexure-B of the certificate, “oxygen gas” was to be taxed at 3%, which respondent No.2 herein – Tata Steel continued to pay at 3%.
2.1 The State Government issued a fresh notification dated 9.9.1983 directing that the rate of tax payable under section 13(1)(b) on raw materials for use in the manufacture or processing of goods for sale in the State or in course of Inter-State trade or commerce excluding such raw materials which have already undergone any manufacturing or production process and which are required for further assembly, shall be at the rate of 2%. Vide notification dated 3.2.1986, the State Government deleted the term “or in the course of interstate trade or commerce”.
2.2 Respondent No.1 herein, who is a manufacturer of pure oxygen sold the oxygen to respondent No.2 – Tata Steel. Respondent No.1 raised a dispute with respect to the rate of concessional rate of tax. According to respondent No.1, the pure oxygen sold to respondent No.2 – Tata Steel was used as a “raw material” in production of steel through basic oxygen steelmaking (BOS method). The Assessing Authority disputed the sale of oxygen by respondent No.1 in favour of respondent No.2 at 2% on the ground that such sale is not of “raw material” but of goods other than raw materials and as such the concessional rate of tax applicable to such sale under Section 13(1)(b) would be 3%, rather than 2%.
2.3 In a writ petition preferred by respondent No.1, the High Court of Jharkhand dismissed Writ Petition No. 4963/2005 by holding that respondent No.1 has no locus to file the writ petition as the tax was payable by respondent No.2 – Tata Steel, who is the purchaser of oxygen produced by respondent No.1. The judgment and order passed by the High Court was the subject matter of Civil Appeal Nos. 1538/2009 and 1540/2009 before this Court. The said appeals came to be allowed by this Court vide reported judgment and order in the case of BOC India Limited v. State of Jharkhand and Others, (2009) 15 SCC 590. This Court remanded the matter to hold an enquiry and consider, whether the oxygen sold by respondent No.1 to respondent No.2 can be said to be “raw material” for the manufacture of steel. The matter came to be remanded to the assessing authority. That thereafter, a six member committee was constituted to enquire into whether the pure oxygen sold can be said to be “raw material”. A detailed inspection report pertaining to inspection and inquiry of Tata Steel, by a six member committee, was submitted and it was found that ‘oxygen gas’ is not a direct “raw material” of steel production and the work of oxygen is only of a refining agent. It was opined that the main function of the oxygen is to reduce the carbon content as per requirement and as such oxygen gas is not a direct “raw material” of steel. The report also stated that the use of oxygen to reduce quantity of carbon from iron cannot be a ground to say that oxygen is a “raw material” of steel. Based on the inspection report dated 4.2.2010, the assessing officer issued notice to respondent No.1 dated 11.6.2010 seeking clarification as to why oxygen may not be considered to be a ‘refining agent’. The assessing officer passed an order of assessment dated 1.10.2011 relating to financial years 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06 holding that the oxygen is used as goods other than “raw material” in steel making and that it is a ‘refining agent’, ‘reducing agent’ and that 3% tax is to be levied on oxygen. On the basis of the order of assessment, the Deputy Commissioner, Commercial Taxes, Jamshedpur Circle issued a demand notice dated 10.10.2011against respondent No.1 – Linde India Limited.
2.4 Tata Steel assailed the assessment order by way of writ petition before the High Court. The High Court relegated the Tata Steel to file an appeal under Section 45 of the Bihar Finance Act, 1981. That thereafter, respondent No.1 – Linde India Limited filed an appeal under Section 45 of the Bihar Finance Act, 1981 before the Joint Commissioner, Commercial Taxes (Appeals). The Joint Commissioner dismissed the said appeal vide order dated 7.6.2013. Revision application came to be dismissed against the order passed by the first appellate authority, by order dated 30.03.2015. The order passed by the revisional authority was the subject matter of present writ petition before the High Court. By the impugned common judgment and order, the High Court has allowed the said writ petition and set aside the orders passed by all the authorities below, holding that as the function of the oxygen is to convert pig iron into steel by reducing the percentage of carbon dioxide by converting it to carbon monoxide which is necessary for the purpose of manufacture of the end product – steel and therefore the oxygen can be said to be a “raw material” and therefore respondent No.1 is entitled to concessional rate of tax at 2%. The impugned common judgment and order passed by the High Court is the subject matter of present appeals.
3. Shri Arunabh Chowdhury, learned Senior Advocate appearing on behalf of the appellants – State of Jharkhand has vehemently submitted that in the facts and circumstances of the case, the High Court has seriously erred in interfering with the concurrent findings recorded by all the three authorities below, while exercising the powers under Article 226 of the Constitution of India.
3.1 It is submitted that the findings recorded by all the authorities below that oxygen can be said to be a ‘refining agent’ and its main role is to reduce carbon content up to the desired level and therefore the oxygen does not fall in the category of other goods used in the manufacturing process of steel and considering the detailed inspection report given by a six member committee, the findings recorded by all the authorities below were not required to be interfered with by the High Court in exercise of powers under Article 226 of the Constitution of India. Reliance is placed on the decision of this Court in the case of State Bank of India v. K.S. Vishwanath, 2022 SCC OnLine SC 667.
3.2 It is submitted that even otherwise on merits also, the oxygen sold by respondent No.1 to respondent No.2 – Tata Steel cannot be said to be “raw material” for the purpose of manufacture of steel. It is vehemently submitted that the oxygen used can be said to be a part of manufacturing process at the most while in any case it cannot be said to be a “raw material” for the purpose of manufacture of the end product – steel.
3.3 It is submitted that as observed and held by this Court in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s Thomas Stephen & Co. Ltd., (1988) 2 SCC 264, goods used for ancillary purposes like fuel in the process of the manufacture cannot be said to be “raw material” for manufacture of goods.
3.4 It is submitted that in the present case, the fact-finding committee consisting of experts submitted a detailed inspection report and it was specifically found that the oxygen gas is not a direct “raw material” of steel production and the work of oxygen is only a refining agent and its main function is to reduce carbon content as per requirement and as such, oxygen gas is not a direct “raw material” of steel. It is submitted therefore that once that is the position, ‘oxygen gas’ cannot be said to be a “raw material” in manufacture of the steel and therefore the rate of tax at 3% would be leviable.
3.5 It is submitted that in fact the 3% tax was paid by the respondents on the pure oxygen till the bifurcation of the State of Bihar into State of Bihar and State of Jharkhand and no dispute at any point of time was raised by the respondents. The respondents continued to pay the rate of tax at 3%. However, a dispute was raised only when the State of Jharkhand came into existence and they demanded the rate of tax at 3%.
3.6 Making the above submissions and relying upon the aforesaid decisions, it is prayed to allow the present appeals and quash and set aside the impugned common order passed by the High Court.
4. The present appeal is vehemently opposed by Shri S. Ganesh, learned Senior Advocate appearing on behalf of the respondents – Linde India Limited & Tata Steel.
4.1 Shri S. Ganesh, learned Senior Advocate appearing on behalf of the respondents has submitted that the issue involved in the present appeals is, as to whether the oxygen gas supplied by respondent No.1 (Linde India Limited) to respondent No.2 (Tata Steel) is used as a “raw material” in the manufacturing process of steel, so as to entitle respondent No.1 to pay concessional rate of tax on the same under Section 13(1)(b) of the Bihar Finance Act, 1981 (as applicable to the State of Jharkhand). It is submitted that if the oxygen gas is used as a “raw material”, the same would be taxed @ 2% of sales tax, which is otherwise chargeable @ 3% on sale thereof.
4.2 It is submitted that the oxygen supplied by Linde India Limited to Tata Steel is directly used by Tata Steel in the manufacture of steel making and therefore the same is “raw material” and consequently entitled to the benefit of concessional rate of tax under Section 13(1)(b) of the Bihar Finance Act, 1981, r/w applicable notification, adopted in the State of Jharkhand.
4.3 It is submitted that the High Court in its impugned judgment has in great detail noted the process of manufacture of steel by Tata Steel, which is called Basic Oxygen Steel Method (BOS method). It is submitted that the High Court has noted the two stages of operation, the first being operation in blast furnace and second being operation in L D vessel. It is submitted that the High Court has described them as chemical reaction no.1 and chemical reaction no. 2. The High Court has also noted the use of the oxygen in both the stages in both the operations. It is submitted that thereafter the High Court has come to the conclusion that use of the oxygen in steel making is as “raw material” and “raw material” is not anti-thesis to it being a “refining agent.” That the High Court has rightly observed that it is a wrong notion in the mind of the authorities below that a ’refining agent’ cannot be a “raw material.” It is submitted that the High Court has rightly held that ‘refining agent’ can also be a “raw material”, if it is indispensable, non-replaceable, used in large quantity, which is inevitable to be used.
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