TMI Blog2012 (11) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... s been paid on such purchases can be claimed as input tax credit under Section 2(27) of the OVAT Act against the tax payable on sale of finished products i.e. aluminum, aluminum ingots and sheets etc. - Decided in favor of assessee. Whether imposition of penalty under Section 43(2) of the OVAT Act can only be levied if the escapement is without any reasonable cause - held that:- VAT is indirect tax on consumption of goods. It is the form of collecting sales tax under which tax is collected in each stage on the value added to the goods. The basic object of VAT Scheme is to provide voluntary and self-compliance. It goes without saying that to plug the leakage of revenue, the Legislature enacted law authorizing imposition of penalty for infraction of any statutory provision. penalty proceedings are quasi-judicial in nature. Quantification of penalty under Section 43 of the OVAT Act is dependent upon the tax assessed under that Section. Once the Assessing Officer comes to the conclusion that the dealer is indulged in fraudulent activities and assesses him under Section 43 of the OVAT Act, there is no need for the Assessing Officer to make further investigation to find out wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Corporate Office at NALCO, Plot No.P/1, NALCO Bhawan, Nayapalli, Bhubaneswar, Dist: Khurda. It is an integrated establishment consisting of the following three units, namely, (a) Aluminium Refinery Plant at Damanjodi in the district of Koraput, having (8.00 lakh Tons per annum). Presently, enhanced to 21.0 lakhs MT per annum. (b) Aluminium Smelter Plant at Angul in the district of Angul having (2.15 lakhs MT per annum). Presently enhanced to 4.60 MT per annum. (c) Captive Thermal Power Plant of 720 Mega Watt meant for Smelter Plant at Angul. Presently, enhanced to 1200 Megawatt. 5. For the aforesaid activities, the petitioner is registered under the Central Sales Tax Act, 1956 vide Registration Certificate No. BHC- 1113 dated 16.09.1981 whereas separate and individual Registration Number had been allowed under Orissa Sales Tax Act, subsequently replaced with the OVAT Act in respect of the aforesaid three manufacturing units of the petitioner. Thereafter the petitioner has been granted the centralized registration certificate under the OVAT Act w.e.f. 01.04.2011 by declaring its Corporate Office at Bhubaneswar as the principal place of business. It has filed its sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claimed by or be allowed to a registered dealer in respect of input or capital goods other than those covered under Schedules A, C and D in manufacturing of goods where the finished products are exempted from tax either in whole or in part under the OVAT Act or under the CST Act, 1956. 8. Dr. Pal, further submitted that the contentions of opposite party that since the materials like coal, alum, caustic soda, etc. which are purchased from market on payment of tax and used as input in the manufacture of electrical energy in the Captive Power Plant of the petitioner and the said electrical energy being the finished product exempted from tax under Item No.13 of Schedule A, input tax credit on such materials cannot be allowed as a set off is totally misconceived and not sustainable in law. It is further submitted that coal along with other materials are used for generation of electrical energy which is subsequently used in continuous process of manufacturing of finished products viz. aluminum, aluminum ingots and sheets etc. After coal is being purchased from Mahanadi Coalfields Limited on payment of tax, the said goods are being fed into a boiler where it is burnt with the help of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of input tax credit as made by the Assessing Officer is not correct. Placing reliance on the judgment of the Hon ble Supreme Court in the case of J.K. Cotton Spinning Weaving Mills Co. Ltd. Vs. Sales Tax Officer, (1965) 16 STC 563 (SC), it is submitted that 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. In support of the contention, Dr. Pal, has also relied upon the judgment of the Hon ble Supreme Court in the case of Collector of Central Excise vrs. M/s. Ballarpur Industries Ltd., Vol. 77 STC 282 and submitted that the opposite party while granting registration certificate under the OVAT Act has treated coal under the heading of fuel. Further, placing reliance upon the judgment of the Hon ble Supreme Court in the case of Commercial Taxation Officer vs. Rajasthan Taxchem Ltd., 5 VST 529 (SC), Dr. Pal, submitted that diesel in that case was termed as raw material and not otherwise and the benefit of deduction had been allowed. 11. It is further submitted that if the test of essentiality or the test of dependency will be applied in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any operation in course of manufacture, only if integrally connected with the operation which results in the emergence of manufactured goods, would come within the term manufacture . But in the case at hand, electricity generated is a finished product itself and it is not integrally connected with manufacturing of aluminum and aluminum ingots. Mr. Kar, further placing reliance on the decisions of the Hon ble Supreme Court in the case of Deputy Commissioner of Sales Tax (Law) vs. Thomas Stephen Co. Ltd., (1988) 69 STC 320 (SC), submitted that consumption as contemplated by Section 2(25) of the OVAT Act must be in the manufacture as raw material or of other components which go into the making of the end-product. Goods used for ancillary purposes, like fuel, in the process of manufacture, do not fall within section 2(25) of the OVAT Act. Further placing reliance upon the judgment of the Hon ble Supreme Court in the case of Union of India and others vs. Dharamendra Textile Processors and others, (2008) 18 VST 180 (SC), Mr. Kar, submitted that wilful concealment is not an essential ingredient for attracting civil liability or penalty. 15. On the rival contentions advanced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase is that the petitioner is carrying on business in manufacturing and selling of aluminum, aluminum ingot and sheet etc and to manufacture the finished products the power plant has been set up to manufacture/ generate electrical energy. 20. The relevant portion of Section 20(8)(k) of the OVAT Act, reads thus: 20.(8) No input tax credit shall be claimed by or be allowed to a registered dealer xx xx xx (k) in respect of input or capital goods other than those covered under Schedules A, C and D used in manufacture of goods where the finished products are exempted from tax either in whole or in part under this Act or under the Central Sales Tax Act, 1956 (74 of 1956) 21. Section 17 of the OVAT Act envisages that the sale of all goods specified in Schedule A shall be exempted from tax subject to conditions and exceptions set out therein. Therefore, sale of electrical energy which appears under Item No.13 of Schedule A is exempted from levy of value added tax under OVAT Act. Consequently, no input tax credit shall be claimed by or allowed to a registered dealer in respect of tax paid on input of purchases by a dealer in course of his business for use in producing or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic soda and other consumables etc. are necessary which the petitioner purchases on payment of tax. 26. It is not disputed that huge quantity of electrical energy is required during electrolysis process to produce aluminum which is a commercial product. Thus, the electrical energy generated in the Captive Power Plant of the petitioner is not the final product which is sold in the market. Electrical energy which is generated with the use of coal and other materials is only an intermediate product which is used in the process of manufacturing of final product viz. aluminum, aluminum ingots and sheets etc. 27. The Hon ble Supreme Court in the case of J.K. Cotton Spinning and Weaving Mills Co. Ltd. (supra), held that 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 but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression in the manufacture of goods . Undisputedly, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in terms of Section 2(25) of the OVAT Act. 30. In the case of Reliance Industries Ltd. (supra), this Court held as under: 18. Now the question that arises for consideration is whether the furnace oil is a consumable within the meaning of Section 2(25) of the OVAT Act. The expression consumable has not been defined in the OVAT Act. In the absence of any such statutory definition the expression has to be understood in the meaning assigned to it by various dictionaries and how it is understood in trade and commerce. Consumable , according to Webster Dictionary means that which can be consumed, a consumable commodity. Consume means to eat, use up, and destroy. According to Shorter Oxford Dictionary consumable means capable of being consumed by fire. The term fuel according to Webster Dictionary means any material as coal, oil, gas, wood, etc. which is burnt to supply heat or power. According to Shorter Oxford Dictionary fuel means material for burning combustible matter for fires. According Micropaedia Britannica Vol. 5, oil is also called fuel oil and it is used primarily for steam boilers in power plants, on board ship, and in industrial plants. xx xx xx 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry expression consumables postulates that such articles are destroyed or used upon the processing or manufacturing of goods. It is because of this reason that while consumable by an inclusive definition are included in the definition of input under Section 2 (25) of the VAT Act the legislature did not insist upon the requirement which appears in the earlier clauses that such goods must go into composition of finished products. When the legislature does not insist upon such requirement, the insistence by opposite party no.1 that consumables must go directly into composition of finished products is totally misconceived and runs contrary to the very definition of input under Section 2 (25) of the VAT Act. 31. In the case of Commercial Taxation Officer (supra), the question was whether diesel can be called raw material in the manufacture of polyster yarn. In that case the assessee is engaged in he business of manufacture of polyster yarn and for the said purpose it purchased diesel and used it for manufacturing of electricity by G.D. Sets. The assessee in that case claimed the benefit of sales tax on the ground that diesel purchased is a raw material for the manufacture of the ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and others vs. State of Gujarat and another, [2010] 32 VST 97 (Guj) by applying the test of essentiality and the test of dependency as laid down by the Hon ble Supreme court in the case of Ballarpur Industries (supra) and J.K. Cotton (supra) has come to the conclusion that goods like natural gas, furnace oil, diesel oil and naphtha when used as fuel for generation of electricity which was then used in the manufacturing process of the finished products like caustic soda, industrial chemicals, etc will come under the meaning of the expression raw materials , processing materials or consumables stores . 35. In view of the above, we are of the considered view that coal, alum, caustic soda and other consumables purchased from market on payment of tax and used for generation of electrical energy in the Captive Thermal Plant of the petitioner which is used in the process of manufacture of finished product viz. aluminum, aluminum ingots and sheets etc. taxable under the OVAT Act. are input as defined under Section 2(25) of the OVAT Act and the tax which has been paid on such purchases can be claimed as input tax credit under Section 2(27) of the OVAT Act against the tax paya ..... X X X X Extracts X X X X X X X X Extracts X X X X
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