Uttarakhand High Court
CTR/22/2013 on 22 April, 2022
Author: S.K. Mishra
Bench: S.K. Mishra
IN THE HIGH COURT OF UTTARAKHAND
AT NAINITAL
SRI JUSTICE S.K. MISHRA, A.C.J.
AND
SRI JUSTICE R.C. KHULBE, J.
COMMERCIAL TAX REVISION NO. 22 OF 2013
22ND APRIL, 2022
BETWEEN:
M/s Tiger Steel Engineering India Pvt. Ltd. .....Revisionist.
And
Commissioner, Commercial Tax ....Respondent.
Counsel for the Revisionist : Mr. S.K. Posti, learned Senior
Counsel assisted by Mr. Ashutosh
Posti, learned counsel.
Counsel for the Respondent : Mr. Mohit Maulekhi, learned Brief
Holder for the State.
Upon hearing the learned Counsel, the Court made the
following
JUDGMENT:(per SRI S.K. MISHRA, A.C.J.) The following substantial questions of law arise in this case:-
"i. Whether on the facts of the case, the learned Commercial Tax Tribunal was justified in law in not giving the benefit of input tax credit regarding those goods which were consumed by the petitioner during the manufacturing of finished goods (pre-fabricated structures)?
ii. Whether on the facts of the case, the learned Assessing Authority and the learned Commercial Tax Tribunal was justified in law in not giving the input tax credit to the revisionist regarding those goods which were approved by the Assessing Authority as goods 2 essential for manufacturing the finished goods on the garb of goods treated as consumable?
iii. Whether on the facts of the case, the leaned Assessing Authority and the learned Commercial Tax Tribunal was justified in law in giving the benefit of notification dated 31.03.2008 prospectively?"
2. By means of this revision, the revisionist challenges the order passed by the Assessing Authority, by which the Assessing Authority refused to give the input tax credit to the revisionist to those goods, especially welding electrodes, which have been used in the manufacturing of the finished goods. The order of assessment was passed on 25.06.2010. The said order was challenged before the learned Commercial Tax Tribunal, Dehradun (hereinafter referred to as the "Tribunal" for brevity), in Second Appeal No.25 of 2012, which was also dismissed on 25.06.2013. The matter relates to the Assessment Year 2006-07.
3. It is apparent from the records that the Assessing Authority, while assessing the commercial tax of the revisionist, treated certain goods, especially welding electrodes, which were used by the revisionist in manufacturing of pre-fabricated structures, as consumables, and not as raw material, and therefore, the benefit of input tax credit was denied to the revisionist. The revisionist assailed the said assessment order before the learned Tribunal, which in its impugned order, has held that the 3 Uttarakhand Value Added Tax, 2005, the Amending Act, 2008 is prospective in effect, and is not applicable to the consumables which were used by the assessee for the Assessment Year 2006-07. The learned Tribunal also held that those materials, especially welding electrodes, were consumables, and therefore, are not eligible for input tax credit.
4. Mr. S.K. Posti, the learned Senior Counsel appearing for the revisionist, at the outset, concedes that the revisionist, at this stage, do not raise the plea that welding electrodes are consumables, and that it is covered by the Amending Act, 2008. He, on the other hand, relying upon several judgments of the Hon'ble Supreme Court, would argue that welding electrodes are raw material for the industry run by the revisionist. Such welding electrodes are used in fabricating different structures, and those electrodes lose its character and assimilate totally in the finished product of the assessee, and therefore, they should be treated as raw material, and not as consumables.
5. This aspect has been dealt by the Hon'ble Supreme Court on several occasions. In the case of "Collector of Central Excise, New Delhi vs. Ballarpur Industries Ltd.", reported in (1990) 77 STC 282, the Hon'ble Supreme Court examined "whether sodium sulphate which is used in the chemical recovery cycle of sodium sulphide which forms an 4 essential constituent of sulphate cooking liquor used in the digestion operation in manufacturing of paper and paper boards is raw material, or not?" The Hon'ble Supreme Court has held that for an item to qualify itself 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 reaction, it will not ipso facto ceased to be raw material. Sodium Sulphate was utilised in the preparation of an anterior, intermediate product at the stage of 'digestion' of the pulp. It is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient. Thus, the Hon'ble Supreme Court came to the conclusion that the sodium sulphate was used in the manufacturing of paper as "raw material" within the meaning of the Notification No.105/82-CE, dated 28.02.1982.
6. In the case of Tata Engineering & Locomotive Company Ltd. vs. State of Bihar, reported in (1994) 6 SCC 479, the Hon'ble Supreme Court, while interpreting the provisions of Section 13(1)(b) of the Bihar VAT Act, has held that batteries, tyres and tubes which are by themselves finished product would be raw material when they are fitted in a vehicle, by observing as follows:-
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"What requires consideration, therefore, is whether items such as tyres, tubes, batteries etc. purchased by the appellant for use in the manufacture of vehicles which are otherwise finished products could avail of concessional rate of tax at 1%. That would depend on the construction and understanding of the expression 'industrial raw-material (inputs)' used in the Notification. The word 'raw-material' has not been defined in the Act. It has, therefore, to be understood in the ordinary and well accepted connotation of it in the common parlance of the persons who deal with it. According to dictionary, it means 'something which is used for manufacturing or producing the good'. The ordinary common sense understanding of it is that it is something from which another new or distinct commodity can be produced."
7. In the case of BOC India Ltd. vs. State of Jharkhand & others, and Tata Steel Ltd. vs. State of Jharkhand & others, reported in [(2009) 21 VST 490 (SC)], the Hon'ble Supreme Court has examined "whether oxygen used in the manufacturing of steel is a raw material, or not?"
The Hon'ble Supreme Court took into consideration the above quoted judgments in the cases of Tata Iron & Steel Co. Ltd.
vs. State of Jharkhand, reported in (2005) 4 SCC 272; of Central Excise, New Delhi vs. Ballarpur Industries Ltd.
(supra); and Tata Engineering & Locomotive Company Ltd.
vs. State of Bihar (supra), and has come to the conclusion that oxygen which is injected to the furnace through lance at the time of manufacture of steel, though it loses its character 6 in the final products, is an essential raw material in the manufacturing of steel.
8. Applying these principles to the present case, we find that the revisionist-firm is manufacturing pre-fabricated structures which involve gas and electric welding. In other words, gas and electric welding is an integral part of the manufacturing process. It is also well-known that in the process of welding, welding electrodes are very much necessary. Though, they lose their character and nature in the end product, but, nonetheless, without welding electrodes, a welding cannot take place, and pre-fabricated products cannot be manufactured. Hence, we are of the opinion that welding electrodes are "raw material" as far as manufacturing the pre-fabricated products are concerned, and therefore, the learned Assessing Authority, as well as the learned Tribunal, have committed error on record by not extending the benefit of input tax credit to the revisionist which assessing the tax liability.
9. Accordingly, the revision is allowed. The orders dated 25.06.2010 and 25.06.2013 are set-aside. The matter is remitted back to the Assessing Authority to re-assess the tax liability of the revisionist by giving the benefit of input tax credit. We also made it clear that the Amending Act, 2008 is not retrospective in effect, and is not applicable to the Assessment Year 2006-07.
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10. Urgent certified copy of this order be supplied to the learned counsel for the parties, as per Rules.
(S.K. MISHRA, A.C.J.) (R.C. KHULBE, J.) Dated: 22nd April, 2022 NISHANT