Allahabad High Court
The Kisan Sahkari Chini Mills Ltd. vs Commissioner Of Sales Tax on 11 October, 2000
Equivalent citations: [2002]125STC216(ALL)
Author: R.K. Agrawal
Bench: R.K. Agrawal
JUDGMENT R.K. Agrawal, J.
1. The Kisan Sahkari Chini Mills Ltd., Budaun, has filed the present revision against the order dated March 16, 1991, passed by the Sales Tax Tribunal, Haldwani Bench, Haldwani, in Second Appeal No. 621 of 1990 (assessment year 1986-87).
2. The facts of the case in brief are that the applicant is a registered dealer under the provisions of the Central Sales Tax Act, 1956 (hereinafter referred to as "the Act") and is engaged in the business of manufacture and sale of sugar, by-products and its waste products, etc. It had applied for grant of registration certificate in respect of various items including steel, cement and paints, which were to be used by the applicant in the manufacture of sugar and other products. The assessing authority vide order dated December 7, 1987 disallowed the registration in respect of steel, cement and paints. The applicant preferred an appeal under Section 9 of the Act before the Assistant Commissioner (Judicial), Sales Tax, Haldwani, who vide order dated September 15, 1989 had rejected the appeal.
3. Feeling aggrieved by the said order, the applicant preferred an appeal under Section 10 of the Act before the Tribunal, which too has been dismissed by the Tribunal by the impugned order.
4. I have heard Sri Rajesh Kumar, learned counsel for the applicant and Sri S.D. Singh, learned standing counsel appearing on behalf of respondent.
5. The learned counsel for the applicant submitted that cement was required by the applicant for fixing the machinery, whereas steel was required for use in the boiler and paints were required for the protection of the machinery. He submitted that all the aforesaid three items are connected with the manufacturing. According to the learned counsel for the applicant, the Tribunal had accepted that all the three items play some role in the manufacturing, but did not allow the benefit on the ground that they are not directly used in the manufacturing process. He submitted that the benefit of Section 8-A of the Central Sales Tax Act, is not confined to those items, which are directly required for the manufacturing, but the benefit is also available to those goods which are required for the manufacturing purposes and play some role. He submitted that under Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957 (hereinafter referred to as "the Rules") stores is also included and, therefore, the aforesaid three items being stores is liable to be included in the list of goods, which the applicant can purchase against declaration form C.
6. Sri S.D. Singh, learned standing counsel on the other hand submitted that by no stretch of imagination, steel, cement and paints can be said to be goods, which are used in the manufacture of sugar and, therefore, they have rightly been disallowed.
7. For appreciation of the rival contention raised by the learned counsel for the parties, it is necessary to reproduce Sections 7(1), 8(1), 8(3)(b) of the Act and Rule 13 of the Rules which read as follows :
"7. Registration of dealers.--(1) Every dealer liable to pay tax under this Act, shall, within such time as may be prescribed for the purpose, make an application for registration under this Act to such authority in the appropriate State as the Central Government may, by general or special order, specify, and every such application shall contain such particulars as may be prescribed.
8. Rate of tax on sales in the course of inter-State trade or commerce,--(1) Every dealer, who in the course of inter-State trade or commerce,--
(a) sells to the Government any goods ; or
(b) sells to a registered dealer other than the Government goods of the description referred to in Sub-section (3) ;
(2) .........................
(2A) .........................
(3) The goods referred to in Clause (b) of Sub-section (1)--
(a) Omitted ;
(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 mining or in the generation or distribution of electricity or any other form of power.
Rule 13 : 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."
8. On a conjoint reading of the aforesaid provisions, it will be seen that the goods specified in the certificate of registration is to be used by the person in the manufacture or processing of goods for sale. Admittedly, all the items in question, viz., steel, cement and paint cannot be included in the description of raw materials, processing materials, machinery, plant, tools, spare parts, accessories, fuel or lubricants as mentioned in Rule 13 of the Rules.
9. Learned counsel for the applicant contended that they would fall under the description of the word "stores" as mentioned in Rule 13. In support of his aforesaid plea he relied on the following decisions of the honourable Supreme Court :
(1) Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar, reported in [1965] 16 STC 259 (SC).
(2) J.K. Cotton Spinning & Weaving Mills Co, Ltd. v. Sales Tax Officer, Kanpur, reported in [1965] 16 STC 563 (SC).
(3) Collector of Central Excise, Calcutta-II v, Eastend Paper Industries Ltd., reported in [1990] 77 STC 203 (SC) ; (1989) 43 ELT 201 (SC).
(4) Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd., reported in [1990] 77 STC 282 (SC) ; 1990 UPTC 157 (SC).
10. Sri S.D. Singh, learned standing counsel has relied upon the following decisions :
(1) Ballarpur Straw Board Mills Limited (now known as Ballarpur Industries Limited) v. State of Karnataka reported in [1978] 42 STC 401 (Kar) ;
(2) Sivalik Collulose Ltd. v. State of U.P. reported in 1992 UPTC 1 (All.) ;
(3) Commissioner of Sales Tax v. Rewa Coal Fields Ltd. reported in [2002] 125 STC 212 (SC) ; (1999) 5 SCC 715 ;
(4) Coastal Chemicals Ltd. v. Commercial Tax Officer, A.P. reported in [2000] 117 STC 12 (SC).
11. In the case of Indian Copper Corporation Ltd. [1965] 16 STC 259 the honourable Supreme Court has held as follows :
"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."
At another place it has held that :
"The statutes relating to factories and mines impose upon the owner of the factory and the mine obligation to maintain effective health services for the benefit of the workmen. But it cannot on that account be said that the goods purchased for the hospital such as equipment, furnishings and fittings are intended for use in the manufacture or processing of goods for sale or in the mining operations. The mere fact that there is a statutory obligation imposed upon the owner of the factory or the mine to maintain hospital facilities would not supply a connection between the goods and the manufacturing or processing of goods or the mining operations so as to make them goods intended for use in those operations.
...............
'Stationery' also is not intended for use in the manufacture or processing of goods for sale or for mining operations. Use of stationery undoubtedly facilitates the carrying on of a business of manufacturing goods or of processing goods or even mining operations ; but the expression 'intended to be used' cannot be equated with 'likely to facilitate' the conduct of the business of manufacturing or of processing goods or of mining."
12. In the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563, the honourable Supreme Court has held as follows:
"Section 8(3)(b) authorises the Sales Tax Officer to specify, subject to any rules made by the Central Government, goods intended for use by the dealer 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. By Rule 13 the Central Government has prescribed the goods referred to in Section 8(3)(b) : such goods must be intended for use in the manufacture or processing of goods for sale or in mining or generation or distribution of power, and the intended use of the goods must be as specified in Rule 13. It is true that under Rule 13, read with Section 8(3)(b), mere intention to use the goods in the manufacture or processing of goods for sale, will not be a sufficient ground for specification : the intention must be to use the goods as raw materials, as processing materials, as machinery, as plant, as equipment, as tools, as stores, as spare parts, as accessories, as fuel or as lubricants. A bare survey of the diverse uses to which the goods may be intended to be put in the manufacture or processing of goods, clearly shows that the restricted interpretation placed by the High Court is not warranted. The expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'. For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included 'in the manufacture' of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression 'in the manufacture' of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business cannot be carried on. In our judgment, Rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under Section 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for 'turning out or the creation of goods'.
In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods 'in connection with' manufacture of, or 'in relation to' manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within Rule 13. See Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar [1965] 16 STC 259 (SC)."
At another place the honourable Supreme Court has held that--
"Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as 'plant'. It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a 'plant' within the meaning of Rule 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under Section 8(3)(b) goods must be intended for use of the nature mentioned in Rule 13, in the manufacture of goods. Building materials used as raw materials for construction of 'plant' cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify, under Section 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description. The High Court was, therefore, right in rejecting the claim of the company in that behalf."
13. In the case of Eastend Paper Industries Ltd. [1990] 77 STC 203 (SC) ; (1989) 43 ELT 201 (SC), the honourable Supreme Court while following its earlier decision in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563, had held that processes incidental or ancillary to wrapping are to be included in the process of manufacture in the sense of bringing the goods into existence as these are known in the market is not complete until these are wrapped in wrapping paper. It held wrapping paper to be the component part or the raw material used and consumed in the finished products.
14. In the case of Ballarpur Industries Ltd. [1990] 77 STC 282 at page 289, the honourable Supreme Court has held as follows :
"The question, in the ultimate analysis, is whether the input of sodium sulphate in the manufacture of paper would cease to be a 'raw material' by reason alone of the fact that in the course of the chemical reactions this ingredient is consumed and burnt up. The expression 'raw material' is not a defined term. The meaning to be given to it is the ordinary and well-accepted connotation in the common parlance of those who deal with the matter.
The ingredients used in the chemical technology of manufacture 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 end-product ; 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 quality and value as raw material. In such a case, the relevant test is not its absence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This equality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus."
The honourable Supreme Court has further held that :
"On a consideration of the matter, we are persuaded to the view that the Tribunal was right in its conclusion that sodium sulphate was used in the manufacture of paper as 'raw material' within the meaning of the Notification No. 105/82-CE, dated 28th February, 1982."
15. Now coming to the decisions relied upon by the learned standing counsel in the case of Ballarpur Straw Board Mills Ltd. [1978] 42 STC 401, the honourable Karnataka High Court after referring to the two decisions of the honourable Supreme Court in the case of Indian Copper Corporation Ltd. [1965] 16 STC 259 and J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563 had held that timber of all kinds for using it in the construction or maintenance of building within the precincts of the factory, paints and varnishes for using them in painting the factory building and firebricks, firecement, cement compound and china clay for using them in the construction cannot be allowed in view of the observations of the honourable Supreme Court in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563 ; AIR 1965 SC 1310.
16. In the case of Sivalik Collulose Ltd. 1992 UPTC 1 this Court while following the decision of honourable Supreme Court in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563; AIR 1965 SC 1310 has held as follows :
"In the present case the petitioners have mentioned in column 16 of form A the disputed goods to be used for building construction and office equipment under the heading 'raw material/packing material'. In fact, such goods which are required for the purposes of construction or office equipment for starting or running the business cannot by any stretch of imagination be said to be raw material/packing material. Apart from wrong declaration made in column 16 by the petitioners such goods cannot come within the boundary of 'goods' as referred under Section 8(3)(b) of the said Act. Registration, therefore, was wrongly granted. Rule 13 further provides that '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 material, processing materials, machinery, plants, equipments, 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'. Admittedly, the goods which are used for the construction of buildings or as office equipment would not be covered under it.
In the case of J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563 (SC) ; AIR 1965 SC 1310, it was held :
"Section 8(3)(b) authorises the Sales Tax Officer to specify, subject to any rules made by the Central Government, goods intended for use by the dealer 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. By Rule 13 the Central Government has prescribed the goods referred to in Section 8(3)(b) ; such goods must be intended for use in the manufacture or processing of goods for sale or in mining or generation or distribution of power and the intended use of the goods must be as specified in Rule 13. It is true that under Rule 13, read with Section 8(3)(b) mere intention to use the goods in the manufacture or processing of goods for sale, will not be a sufficient ground for specification ; the intention must be to use the goods as raw materials, as processing materials, as machinery, as plant, as equipment, as tools, as stores, as spare parts, as accessories, as fuel or as lubricants. A bare survey of the diverse uses to which the goods may be intended to be put in the manufacture or processing of goods, clearly shows that the restricted interpretation placed by High Court is not warranted. The expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer or converting raw materials into finished goods.
In para 11 of this judgment the Supreme Court further held :
'Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as "plant".' Similar would be the position in the present case, petitioners are manufacturing for sale writing and printing papers and by no stretch of imagination building materials or even equipment could be treated as raw material in the manufacture or processing of goods or even as plant in the manufacture of writing and printing papers."
17. In the case of Rewa Coal Fields Ltd. [2002] 125 STC 212 ; [1999] 5 SCC 715 the honourable Supreme Court was considering the definition of words "raw material" as given in Section 2(1) of M.P. General Sales Tax Act, and has held as follows :
"The respondent-assessee operates a coal mine, which is a manufacturing activity for the purposes of the said Act. It sought registration for the purposes of Section 8 of the Act, which deals with the set-off or refund of tax in respect of tax-paid goods in certain circumstances, of the following on the ground that they were raw materials consumed in the course of manufacture, covered by the afore-quoted definition : timber, kerosene oil, drilling bits, hewing implements of all kinds, dry cells, torches, cement and lime and electrical bulbs. The Sales Tax Officer and the Commissioner of Sales Tax declined to register these as raw materials. The Commissioner found that the timber was used in the mine to prop up its walls. It was only a supporting device and it was not consumed but remained within the mine. It could not, therefore, be treated as a raw material, and it was of no consequence that it was not salvaged by the respondent after the mine was closed. Kerosene oil was required for lanterns for illumination purposes and not as a fuel to power any machine. Hence, it could not be treated as a raw material. Drilling bits were neither instantaneously consumed nor did they form part of the finished goods in any manner. Hewing implements were used to cut down large pieces of the mine walls and surface and their life was perhaps the longest out of the list. Dry cells, torches and cells and electrical bulbs were used only for illuminating the inside of the mine. Cement and lime were used to seal leakages and plaster holes in the mines. It was more in the nature of a building material. The High Court took the contrary view. It said the Commissioner had interpreted the definition of raw material too narrowly. We cannot agree, given that the definition requires that the raw material should be (1) consumed, (2) in the process of manufacture."
The honourable Supreme Court has further held that :
"It seems to us clear that, drilling bits apart, none of the articles aforementioned can qualify to be articles 'consumed in the process of manufacture' or, to put it in a different way, consumed in the mining of the coal. They may be used for purposes incidental to the mining, but are not integral thereto.
18. So far as drilling bits are concerned, they are used to bore, holes in the walls of the mine ; the holes are stuffed with explosives and the detonation thereof yields the coal. Their utility is quickly exhausted. It can, therefore, be said that they are consumed in the mining of the coal. To that extent alone can the assessee succeed."
In the case of Coastal Chemicals Ltd. [2000] 117 STC 12 the honourable Supreme Court was considering the word "consumables" as mentioned in Section 5(b)(l) of the Andhra Pradesh General Sales Tax Act, 1957, and it has held as follows :
"The word 'consumables' in the said provision takes colour from and must be read in the light of the words that are its neighbours, namely, 'raw material', 'component part', 'sub-assembly part' and 'intermediate part' : So read it is clear that the word 'consumables' therein refers only to material which is utilised as an input in the manufacturing process but is not identifiable in the final product by reason of the fact that it has got consumed therein. It is for this reason that 'consumables' have been expressly referred to in the said provision, though they would fall within the broader scope of the words 'raw material'.
In the case of Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SO relied upon in the impugned judgment, it was held that cashew shell used as fuel did not get consumed in the manufacture of other goods and that 'consumption must be in the manufacture as raw material'.
To use the words of Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) the natural gas used by the appellant does 'not tend to the making of the end-product'. It is not a 'consumable'."
19. Though, the honourable Supreme Court in the cases of Rewa Coal Fields Ltd. [2002] 125 STC 212 ; [1995] 5 SCC 715 and Coastal Chemicals Ltd. [2000] 117 STC 12, has considered the question of raw material and consumables respectively, but it has held that it should be consumed in the process of manufacture or tend to the making of the end-product.
20. It is not the case of the applicant that the three items mentioned above are either raw material or consumables. On the other hand it is the specific case taken by the applicant that they fall under the description of the word "stores". The word "store" has not been defined under the Act or the Rules framed thereunder. In Webster's Third New International Dictionary of the English Language, Unabridged, 1971 Edition, the word "stores" has been defined as under:
"articles (as of food) accumulated or some specific object and issued or drawn upon as needed : the raw or unworked material supplies of a manufacturing concern."
21. Thus, the dictionary meaning of the word "stores" is material supplies of a manufacturing concern or articles accumulated for some specific object and issued or drawn upon as needed.
22. From the various decisions referred to above, the principle which emerges is that if a process of activity is so integrally related to the ultimate manufacture of goods so that without the process or activity, manufacture may, if theoretically possible be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods in connection with manufacture or in relation to manufacture or which facilitates the conduct of the business of manufacture will be included within Rule 13.
23. Applying the aforementioned principles, I find that the cement which is required by the applicant for use in the construction of factory building and or foundation, as held by the honourable Supreme Court in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563 ; AIR 1965 SC 1310, which has been followed by the honourable Karnataka High Court in the case of Ballarpur Straw Board Mills Ltd. [1978] 42 STC 401 and this Court in the case of Sivalik Collulose Ltd. 1992 UPTC 1 cannot be said that it is used either directly or even remotely in the manufacture of finished goods. Similar is the case of steel and paints, which too is required only in the repairs of boiler and protection of machineries. They cannot be said to be used even indirectly in the manufacture or processing of goods for sale. Thus, all the three items would not fall under the description of the word "stores", which are used in the manufacture of finished goods.
24. In view of the foregoing discussions, I do not find any force in the revision. The revision lacks merit and is dismissed. However, the parties shall bear their own costs.