TMI Blog2008 (5) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such input shall qualify for set off against the output tax. In that view of the matter furnace oil which is used in the process of manufacture of PSF is to be treated as an "input" as defined in section 2(25) of the OVAT Act and the input tax which has been paid on purchase of furnace oil can be claimed as input tax credit under section 2(27) of the OVAT Act against the tax payable on finished product, i.e., PSF. Accordingly, the impugned order dated June 28, 2006 (annexure 6) is quashed. W.P. allowed. In the result, the writ petition is allowed. There will be no order as to costs. - W.P. (C). No. 2359 of 2006 - - - Dated:- 15-5-2008 - GANGULY A.K. C.J. AND MAHAPATRA B.N. , JJ. B.N. MAHAPATRA J. The petitioner, in this writ petition calls in question, the legality of the order dated June 28, 2006 passed by the Assistant Commissioner, Sales Tax, (LTU) Cuttack-II Range, Cuttack (hereinafter called the the ACST ) under section 30 of the Orissa Value Added Tax Act, 2004 (hereinafter called the OVAT Act ) whereby claim of the petitioner that furnace oil qualifies to be an input for the purpose of availing input tax credit was rejected. Consequently, a tax demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the petitioner to deposit Rs. 15 lakhs and simultaneously directed the opposite parties to revive the registration certificate upon receipt of such amount. It was further ordered that the parties would appear before the ACST on March 6, 2006 on which date the ACST shall fix a date for hearing and proceed with the same. Notice was also issued upon opposite parties on the constitutional validity of section 30 of the OVAT Act. Pursuant to the said order dated February 21, 2006 the petitioner deposited Rs. 15 lakhs with the ACST and the latter withdrew the order of suspension on February 24, 2006. As per the direction of this court, the petitioner appeared on March 6, 2006 and the case was adjourned to March 28, 2006 for hearing. Subsequently, the case was adjourned to April 7, 2006 and again to May 26, 2006 and June 17, 2006 and finally to June 28, 2006, on which date the advocate for the petitioner filed written note of submission. On June, 28 2006, the ACST passed the impugned order under section 30 of the OVAT Act, inter alia, holding that the furnace oil was not a consumable and/or input which directly goes into the composition of finished product. It was only a fuel in prepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel submitted that furnace oil should be treated as consumable and qualifies to be an input for the purpose of availing input tax credit. Learned counsel relied on the following judicial pronouncements in support of his contention that furnace oil is a consumable which qualifies to be an input for the purpose of availing input tax credit. (i) Collector of Central Excise v. Ballarpur Industries Ltd. [1990] 77 STC 282 (SC). (ii) Collector of Central Excise v. Eastend Paper Industries Ltd. [1990] 77 STC 203 (SC). (iii) J.K. Cotton Spinning Weaving Mills. Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563 (SC). (iv) Consolidated Fibres Chemicals Ltd. v. A.C.S.T., Corporate Division [2008] 15 VST 222 (WBTT); [2007] 50 STA 140. (v) Pratap Steel Rolling Mills Ltd. v. State of Punjab [2007] 9 VST 629 (P H). (vi) Haryana Sheet Glass Ltd. v. Commissioner of Cus. C. Ex., Surat-II [2007] 214 ELT 202 (Tri.-Ahmd.). (vii) Saurashtra Calcine Bauxite and Allied Industries v. State of Gujarat [1993] 91 STC 435 (Guj). Per contra, Mr. Mohanty, learned Senior Standing Counsel appearing on behalf of Revenue, submitted that whether furnace oil is consumable or not is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme allowing deduction of input tax from the VAT payable under the OVAT Act is in the nature of a provision of exemption and such provision has to be interpreted strictly and while doing so the interpretation which favours taxation has to be applied. Sections 20, 21 and 22 of the OVAT Act have to be strictly interpreted. Input tax credit is permissible on strict interpretation of section 2(25) of the OVAT Act. Furnace oil, which is used for providing energy, is to be treated as a fuel rather than a consumable, which is directly used in the process or manufacture. The use of the word input has its own significance and consumable to be used as an input must be goods of nature used as raw material. He further argued that the impugned order has been passed in due process of law and there was no defect in decision-making process. The ACST was fully justified in holding that the petitioner was not entitled to claim input tax credit in respect of purchase of furnace oil. He further submitted that in the registration certificate granted in form VAT-103, the furnace oil has been included in the list of goods under the heading fuel along with electric energy, lubricant petrol, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(27) against the tax payable on finished product? Even though the impugned order is revisable under section 79 of the OVAT Act, the provision for revision is not a bar to invoke jurisdiction under article 226 of the Constitution. Reference may be made to the decision of the honourable Supreme Court in the case of Collector of Customs and Excise, Cochin v. A.S. Bava reported in AIR 1968 SC 13. In the said decision, the honourable Supreme Court held that it is settled that the existence of a remedy by way of a revision does not bar jurisdiction of the High Court to entertain a petition under article 226 of the Constitution. The honourable Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District-1, Calcutta reported in [1961] 41 ITR 191; AIR 1961 SC 372, observed that existence of an alternative remedy is not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority from acting without jurisdiction or from continuing such action. The honourable Supreme Court in Paradip Port Trust v. Sales Tax Officer reported in [1999] 114 STC 178; AIR 1999 SC 552, was dealing with an issue relating to interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the ACST asked the dealer to pay an amount of Rs. 47,26,908.94 on the ground that the dealer is not entitled to avail input tax credit on furnace oil. Section 30 authorised the registering authority for the reasons to be recorded in writing to suspend certificate of registration of a registered dealer by notification in prescribed manner. It does not empower the ACST to pass any order requiring any dealer to pay any amount payable under the OVAT Act. By the impugned order, the ACST raised demand against the petitioner as stated above which he is supposed to do while passing the order of assessment. The OVAT Act contains separate provision for the purpose of assessment. Under section 39 of the OVAT Act, which provides for self-assessment, a dealer makes such assessment at the time of furnishing return and deposits admitted tax as per the return. Section 40 provides for provisional assessment. Section 41 read with section 42 provides for audit assessment where the Commissioner selected the class(s) of dealer for audit visit and audit assessment. Section 43 deals with turnover escaping assessment. Section 44 deals with assessment of dealer, who being liable to pay tax, fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a registered dealer other than a registered dealer paying turnover tax under section 16. On a conjoint reading of section 2(25), section 2(26) and section 2(27) of the OVAT Act, it is amply clear that a registered dealer under the OVAT Act shall be entitled to set off the tax paid on the purchase of goods effected by such dealer either for resale or for use in the execution of works contract or for manufacture and processing against the output tax, that is the tax payable on sale of any taxable goods. In the present case, the petitioner is a registered dealer under the OVAT Act and is engaged in manufacture of PSF. It is not disputed that in order to manufacture PSF, furnace oil is required. Now it is necessary to have an idea about the use of furnace oil in the processing and manufacturing of PSF. In the manufacturing process of PSF, the engineering flow-chart produced by the petitioner before opposite party No. 1 which has been annexed by the opposite party to its counter-affidavit as annexure B shows that furnace oil is used as fuel for heating the liquid dowtherm and for converting the same into dowtherm vapour. The said dowtherm vapour is transmitted through pipeline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable Supreme Court and different High Courts and Taxation Tribunals relied on by counsel appearing for the petitioner as well as the opposite parties. In the case of Collector of Central Excise v. Ballarpur Industries Ltd. [1990] 77 STC 282 the question before the honourable Supreme Court was whether the input of sodium sulphate in the manufacture of paper would cease to be a raw material by reason of the fact that in the course of the chemical reactions this ingredient is consumed and burnt up. In the said case, the honourable Supreme Court held that for an item to qualify 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 reactions it did not ipso facto cease to be raw material. Although sodium sulphate was utilised in the preparation of an anterior, intermediate product at the stage of digestion of the pulp, this process was so integrally connected with the ultimate production of goods that, without that manufacture or processing of paper would be commercially inexpedient. In the case of Collector of Central Excise v. Eastend Paper Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easible at all. According to the learned Tribunal the furnace oil, which is purchased by the petitioner therein for use in the boiler for incessant running of other plants in the manufacture of goods and thereby to convert the raw materials into finished goods, and as in the absence of furnace oil manufacture of the end-product, i.e., acrylic fibre would become commercially inexpedient, furnace oil necessarily comes in the campus of consumable goods. The facts of this case are identical to the facts of the case at hand. In the case of Pratap Steel Rolling Mills Ltd. [2007] 9 VST 629, the Division Bench of the Punjab and Haryana High Court had the occasion to consider an identical issue as to whether the purchase value of furnace oil could be deducted from the turnover of iron and steel products as it is used and consumed in the manufacture of iron and steel products. Answering the question in favour of the assessee, the court held that furnace oil purchased by the assessee is one of the primary and essential commodities used by the assessee in the process of manufacture and without use thereof, the production itself is not possible. Similar issue came up for consideration bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hases from a registered dealer or from any other person any goods, the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under section 5 and either (a) consumes such goods in the manufacture of other goods for sale or otherwise or (b) . . . or (c) . . . shall whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purchase for the year at the rates mentioned in section 5. Thus, the language of the section which came up for consideration clearly lays down that the goods must be consumed in the manufacture of other goods for sale or otherwise. Interpreting the said provision, apex court upheld the decision of the Kerala High Court. Thus, the facts of that case are totally different from the facts of the case at hand. The next case relied upon by the department is Delta Paper Mills Ltd. [1991] 81 STC 339 (AP). In this case, the meaning of the word consumable in section 5B of the Andhra Pradesh General Sales Tax Act, 1957 fell for consideration by the Court. The High Court pointed out that the consumption of the goods in manufacture must be as raw material or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were sold by the assessee. The question was whether the assessees were liable to pay excise duty on the sale value of the cinder. The honourable Supreme Court held that coal used by the assessees which led to the production of cinder was not used as a raw material for the end-product. It was used only for the ancillary purpose as fuel. Irrespective of the fact whether any manufacture was involved in the production of cinder, the cinder was not liable to excise duty for the reason that it was not a raw material for the end-product. In producing cinder, there was no manufacturing process involved; coal was simply burnt as fuel to produce steam. Coal was not tampered with, manipulated or transformed into the end-product. For the purpose of manufacture, the raw material had ultimately to get a new identity by virtue of the manufacturing process either on its own or in conjunction with other raw materials. Since coal was not a raw material for the end-product the question of getting a new identity as an end-product due to manufacturing process did not arise. It could not be said that as a result of burning coal, cinder or ash a new product had emerged. While so held, honourable apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 as well as Coastal Chemicals Ltd. [2000] 117 STC 12 (SC). After referring to all the aforesaid decisions, the High Court observed as follows: 22. As far as reliance on the judgment of the honourable Supreme Court in Thomas Stephen Co. Ltd.'s case [1988] 69 STC 320 by the respondent is concerned, while delivering the judgment, their Lordships relied upon an earlier judgment in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC) and distinguished Ganesh Prasad Dixit v. Commissioner of Sales Tax [1969] 24 STC 343 (SC). The correctness of the judgment in Pio Food Packers' case [1980] 46 STC 63 (SC), which was relied upon in Thomas Stephen Co. Ltd.'s case [1988] 69 STC 320 (SC) was doubted by the honourable Supreme Court in Assistance Commissioner (Intelligence)-IV, Hyderabad v. Nandanam Construction Co. [1994] 95 STC 601 and the matter was directed to be heard by a Constitution Bench. The judgment of the honourable Constitution Bench is reported as Assistant Commissioner (Intelligence) v. Nandanam Construction Co. [1999] 115 STC 427 (SC), wherein the view taken in Pio Food Packers' case [1980] 46 STC 63 (SC) was partly overruled and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the petitioner in the process of manufacture without which production of PSF is not feasible is nothing but consumable. Now it is to be examined whether section 2(25) requires that furnace oil, in order to be treated as input, should directly go into the composition of finished product. In the definition of input under section 2(25), the Legislature has included various types of articles. Input has been defined to mean any goods purchased by a dealer in the course of his business for resale or for use in the execution of works contract, in processing or manufacturing, where, such goods directly goes into composition of finished products and includes consumables directly used in such processing or manufacturing. It will appear therefore that the definition of input comprises four different types of articles, viz., articles or goods for resale, goods used in the execution of works contract, goods used in processing or manufacturing, where such goods directly go into composition of finished products and consumables directly used in such processing or manufacturing. Separately, by an inclusive definition, consumables which are directly used in such processing or manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of finished products. So, according to the said notification input comprises of two types of commodities, i.e., (i) those commodities which should directly go into composition of finished product, and (ii) the consumables directly used in such manufacturing process for production of finished product. Therefore, it is not at all necessary that consumables in order to qualify as input should directly go into composition of finished product. What is required is that consumables should be directly used in the manufacturing process for production of finished product. The expressions directly go into composition of finished product and directly used in manufacturing or processing of finished product are not one and the same thing. There is a clear distinction. In the former, while the goods directly go into composition of finished product, in the latter, the consumable is directly used in the manufacturing process of finished products. It has already been held that furnace oil is consumable which is directly used in the manufacturing process for production of finished product. Certainly it does not directly go into composition of finished product. In spite of the same, since ..... X X X X Extracts X X X X X X X X Extracts X X X X
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