Gujarat High Court
State Of Gujarat vs Indian Petrochemicals Corporation ... on 18 June, 1991
JUDGMENT A.P. Ravani, J.
1. This sales tax reference is at the instance of the Revenue under section 69 of the Gujarat Sales Tax Act, 1969. The opponent-assessee is a corporation (a Government of India undertaking). It is a dealer registered under the Gujarat Sales Tax Act, 1969, as well as under the Central Sales Tax Act, 1956. The opponent-assessee has a plant for manufacturing linear alkyl benzene (hereinafter referred to as "LAB'). The assessee sold LAB to Ms. Paramount Chemical Industries, Baroda. On the basis of this sale, the opponent-assessee submitted an application dated February 16, 1979, under section 62(1)(e) of the Gujarat Sales Tax Act, 1969, to the Commissioner for determination of the rate of tax payable on such sale. The question arose under which of the following two entries, which were in force at the relevant time, the article LAB was failing. Entry 9 of Schedule II, Part A read as under :
"9. Dyes and chemicals other than those specified in any other entry in this or any other Schedule."
Entry 32 of Schedule II, Part A reads as follows :
"32. Petroleum products, including light diesel oil but excluding lubricants, kerosene, solvent oil, furnace oil and also excluding motor spirit declared tax-free under entry 39 in Schedule I."
2. The application was heard and decided by the Deputy Commissioner of Sales Tax (Audit) by his detailed order dated April 16, 1980. As held by him, the article in question was failing within entry 9. He further held that it was a chemical other than those specified in any other entry in Schedule II or in any other Schedule to the Act. The assessee felt aggrieved by the said decision and preferred appeal before the Tribunal. The Tribunal, after hearing the parties, came to this conclusion that LAB was a petroleum product and it was falling within entry 32 to Schedule 11, Part A to the Act. The Tribunal bar, decided the appeal as per its judgment and order dated September 3, 1981.
3. Thereafter the State preferred an application for making reference to this Court. The Tribunal has drawn up the statements of facts and made reference to this Court as per its order dated January 13, 1983. The following question is referred to this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right or correct in holding that the produce 'linear alkyl benzene' (LAB) sold by the appellant is a petroleum product covered by entry 32 of Schedule 11, Part A to the Gujarat Sales Tax Act, 1969 and, therefore, the sales thereof are liable to be taxed accordingly ?"
4. Our answer to the aforesaid question is in the affirmative, in favour of the assessee and against the Revenue. Our reasons for this answer are as follows :
5. It is an undisputed posit ion that the two components of LAB are kerosene and benzene. Both, kerosene and benzene are petroleum products. On this point there is no dispute. It is also not in dispute that when these two articles, namely, kerosene and benzene are mixed together in certain proportion, the product LAB comes into existence. It is also not in dispute that LAB does not contain any other ingredients other than kerosene and benzene. Therefore, simply because on account of the mixture of two petroleum products, the third product which has come into existence does not cease to be a petroleum product. It is not a sub-product of petroleum product as is sought to be argued. Even if it may be considered to be a sub-product of one main petroleum product, it would not cease to be a petroleum product. It is not a case of mixing of one petroleum product with something else which is not a petroleum product. In the instant case, only two petroleum products are being mixed in certain proportion and by carrying on certain process thereon, the article called LAB comes into existence. In this view of the matter, the short question is 'that when admittedly two petroleum products are mixed together and third product comes into existence, would it cease to be a petroleum product ? In our opinion, no, even thereafter, it would remain a petroleum product.
5A. In this connection reference may be made to a decision of the Supreme Court in the case of Collector of Central Excise v. Protein Products of India Ltd. reported in [19891 74 STC 98. In that case a question arose as regards the product manufactured by the company called ossein and gelatine. The question was are these articles bone products ? Ossein was prepared from bones by dissolving the mineral part of the bones with phosphoric acid. From the ossein so obtained, gelatine was obtained by treating the same further with an alkali. Although gelatine could also be manufactured from other sources such as pig skin and hides, it was an undisputed position that the company was manufacturing gelatine only from bones. The Tribunal (CEGAT) held that the raw materials for the two products in question was crushed bones. It was contended that the exemption extended to the crushed bones and bone products would not be available to the company inasmuch as it was not a primary product obtained on crushing of bones such as bone sinew, bone grist and bone-meal. Repelling the argument, the Supreme Court held that the word "Product" was defined in the dictionary. The word "product" means "anything produced or obtained as a result of some operation or work". The expression "bone product" therefore, means anything produced or obtained from bones. Whether such derivation was by a simple physical process or by a chemical reaction would not make any difference to the end-product.
6. In the instant case also the raw materials or ingredients of LAB are petroleum products. On this point there is no dispute. After carrying on some process on these petroleum products, if something else is produced that product also remains petroleum product. It is not in dispute that LAB is petrochemical. Thus it is a chemical. But being a petroleum product, it has to be held that it is specified in other entry, and hence it would not fall in entry 9 of Schedule II, Part A.
7. It was contended that in entry 32 of Schedule II, Part A to the Act, kerosene is excluded from the expression "petroleum products". Therefore, it should be held that one of the ingredients of LAB being kerosene, LAB is not a petroleum product. Be it noted that in entry 32 exclusion of kerosene is not on account of the fact that it is not a petroleum product. On the contrary, the exclusion of kerosene from petroleum products in entry 32 indicates that it may not be subjected to tax along with all other petroleum products at the same rate. Simply because from that entry kerosene is excluded, it does not cease to be a petroleum product. Therefore, the aforesaid argument has no merits.
8. Applying the well-known test for applicability of a specific entry to a particular article or commodity, it would be obvious that the people who deal with the commodity also understand LAB as a petroleum product. It was the case of the opponent-assessee before the Commissioner and which has not been disputed that LAB has been considered to be a petroleum product by the excise authorities. It was subjected to excise duty in tariff item No. 8 which was then in force. Tariff item No. 8 of the Central Excises and Salt Act, 1944, as it was in force at the relevant time, described refined diesel oil and vaporizing oil. Therein certain details have been given as regards other products. It is not disputed that refined diesel oil and vaporizing oil referred to in tariff item No. 8 are petroleum products. In this entry LAB had been taxed as far as the Central Excises and Salt Act, 1944, is concerned. Thus it is obvious that the people dealing in this commodity called LAB, have been treating the same as a petroleum product.
9. Unless it is shown that on account of the mixture of two elements which are petroleum products, the product which comes into existence ceased to be a petroleum product, ordinarily it will have to be treated as a petroleum product. Simply because some involved process is required for mixing the two petroleum products and for manufacturing the third one, the ultimate product does not cease to be a petroleum product.
10. For the aforesaid reasons, the reference is answered accordingly with no order as to costs.
11. Reference answered in the affirmative.