TMI Blog2015 (5) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... is a raw-material for generation of electricity in thermal power plant - Held that:- When the processes that are involved in manufacturing/ generation/production of electricity in a thermal plant as narrated in the preceding paragraph is considered in the light of the above observation of the Hon'ble Supreme Court, it can safely be concluded that coal is a raw material for production/generation of electricity. - perusal of the impugned assessment order reveals that before the Assessing Authority, the petitioner produced the expert opinion obtained from IIT, Kharagpur, wherein, it has been opined that coal is a raw material which results in the emergence of electricity. Whether the reasons given by the learned Assessing Authority for disallowing the petitioner's claim to avail concessional levy of entry tax in terms of Rule 3(4) of the OET Rules are legally valid - Held that:- it extreme difficult to accept the above reasons given by the Assessing Authority to hold that coal is not a raw material for generation/production of electricity in thermal power station and that generation of electricity is not a manufacturing activity and therefore the petitioner is not entitled to avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 9C of the Orissa Entry Tax Act, 1999 (for short, 'OET Act') for the period 01.04.2011 to 31.03.2013 levying additional entry tax at the rate of 0.5% amounting to ₹ 2,40,81,536/- and penalty amounting to ₹ 4,81,63,072/- on coal used by the petitioner-Company as raw material for generation of electricity on the ground that such levy is illegal, arbitrary and barred by limitation and outcome of non-application of mind, without jurisdiction and contrary to the provisions of OET Act. 2. Petitioner's case in a nut-shell is that it is a Government of Odisha Undertaking incorporated under the Companies Act, 1956 and a joint venture of Government of Odisha and AES of USA having main objects to establish, operate and maintain power generating stations and tielines, sub-stations and main transmission line connected therewith. In other words, the petitioner is engaged in business of generation of electricity and distribution thereof in the State of Odisha. Ib Thermal Power Station (ITPS) is one of the thermal power generation units of the petitioner-Company situated at Ib Valley area in the district of Jharsuguda, Odisha. The petitioner has also set up mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) holding that coal is a raw-material for the purpose of generating electricity has not been followed by the Assessing Authority on the ground that such finding of this Court is a cursory remark, i.e., Obiter Dicta and the said judgment having been challenged before the Hon'ble Supreme Court, ratio decided in that case has no application to the present case. The above reasons given by the learned Assessing Authority for not following the decision of this Court is impermissible in law. 4. Coal has been mentioned as an item required to be purchased for generation of electricity in the registration certificate and the petitioner during relevant time was purchasing coal from MCL furnishing declaration in Form E-15 in terms of Rule 3(5) of OET Rules stating therein that coal purchased shall be used for production of finished product, i.e., electricity. 5. It was further submitted that 'manufacture' means bringing into existence a new substance. In other words, manufacture implies that when a change takes place a new and distinct article comes into existence known as a commercial product, which can be no longer regarded as the original commodity. Any process or proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following questions fall for consideration by this Court. (i) Whether generation of electricity is a manufacturing activity? (ii) Whether electricity is an article/a good as referred to in Section 2(28) of the OVAT Act which defines the expression manufacture ? (iii) Whether coal is a raw-material for generation of electricity in thermal power station? (iv) If the answers to question (i), (ii) and (iii) are affirmative whether the petitioner is entitled to avail concessional rate of entry tax on coal in terms of Rule 3(4) of the OET Rules? 9. Question No.(i) is whether generation of electricity is a manufacturing activity. The expression 'manufacture' is not defined in the OET Act. However, Rule 2(1)(c) of the OET Rules provides that manufacture with all its grammatical variations and cognate expressions, means a dealer or a person in the business of manufacture as defined in the Orissa Value Added Tax Act, 2004. 10. Section 2(q) of the OET Act provides as follows: 2(q) Words and expressions used in OET Act and not defined in the said Act, but defined in the OVAT Act shall have the same meaning respectively assigned to them in that Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erge having a distinct name, character or use. 17. The Hon'ble Supreme Court in the case of Collector of Central Excise, Jaipur Vrs. Rajasthan State Chemical Works, Deedwana, Rajasthan, AIR 1991 (SC) 2222 held as follows:- .Process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to (sic that the) manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. 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 impossible or commercially inexpedient, that process is one in relation to the manufacture. 18. This Court in the case of Orient Paper Industries Ltd. (supra) while interpreting Section 2(b) of the Central Excise and Salt Act, 1944 has held that generation of electricity for the purpose of Central Excise and Salt Act is manufacture or production of electricity , sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no necessity of specifically exempting sale of electric energy from the payment of sales tax by making a provision for it in the Schedules to the two Acts. It cannot be denied that the Electricity Board carried on principally the business of selling, supplying or distributing electric energy. It would therefore clearly fall within the meaning of the expression dealer'' in the two Acts. [Also see State of A.P. vs. National Thermal Power Corporation Ltd. and Others, (2002) 127 STC 280 (SC) 21. In view of the above decisions of the Hon'ble Supreme Court, electricity is an article as referred to in Section 2(28) of the OVAT Act read with Rule 2(1)(c) of OET Rules which define 'manufacture'. 22. Question No.(iii) is whether coal is a raw-material for generation of electricity in thermal power plant. The processes that are involved in manufacture/generation/ production of electricity as narrated in the written submission filed by the petitioner before the Assessing Authority and not disputed by the opposite party-Department, are as follows:- (a) Coal is the primary material for power generation; (b) In a Thermal Power Plant chemical energy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 dependance of the end product for its essential presence at the delivery and 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 quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus. 25. When the processes that are involved in manufacturing/ generation/production of electricity in a thermal plant as narrated in the preceding paragraph is considered in the light of the above observation of the Hon'ble Supreme Court, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing statute in respect of former commodity which comes within the purview of the taxing statute would be allowed to operate. In any event, such a question must be determined having regard to the expert opinion in the field. We have noticed hereinabove the difference between 'bone meal' and 'crushed bone'. Different utilities of the said items has also been noticed by the Allahabad High Court itself. The High Court or for that matter, the Tribunal did not have the advantage of opinion of the expert to the effect as to whether crushed bones can be used only for the purpose of fertilizer or whether crushed bones are sold to the farmers for use thereof only as fertilizer. 30. In view of the above, we are of the considered opinion that coal is a raw material for production of electricity in thermal plant. The facts and the issues involved in Ahmedabad Electricity Co. Ltd. and others (supra) are completely different from the present case and therefore, it is of no assistance to the Department. 31. Now, let us examine whether the reasons given by the learned Assessing Authority for disallowing the petitioner's claim to avail concessional levy of entry tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d judgment having been challenged in the Hon'ble Supreme Court and the matter is subjudice, the same is not a settled ratio, 32. For the following reasons, we feel it extreme difficult to accept the above reasons given by the Assessing Authority to hold that coal is not a raw material for generation/production of electricity in thermal power station and that generation of electricity is not a manufacturing activity and therefore the petitioner is not entitled to avail concessional rate of entry tax as provided under Rule 3(4) of the OET Rules. (a) It is not the case of the Assessing Authority that without coal thermal power which is finished product in a thermal power station can be produced and therefore, coal is not a primary/principal raw material to generate/produce thermal power. On the other hand, use of coal and production of electricity in a thermal power plant is an integral process and so inextricably connected that no thermal power can be produced without use of coal; (b) Consumption and output ratio between coal and electricity is not necessary/relevant in deciding whether coal is a raw material for generation/production of thermal power. (c) While adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the electricity, which is, in turn, essential to run the plant for manufacturing sponge iron, billets and HR coil. Therefore, when the electricity generation is a captive arrangement and the requirement is for carrying out manufacturing activity, the electricity generation also forms part of the manufacturing activity and the raw material used in that electricity generation qualifies for availing of concessional levy of entry tax in terms of Rule 3(4) of the OET Rules. On the basis of the above contention of the petitioner, this Court held that requirement of Rule 3(4) of the OET Rules is that scheduled goods purchased must be used as raw material in manufacturing the finished product. Thus, those scheduled goods are exclusively confined to raw material only used in manufacture of the finished products. The petitioner-company manufactures sponge iron, billets and HR coil and undisputedly to manufacture such finished goods the coal is not the raw material. Coal is a raw material for the purpose of generating electricity, which is, in turn essential to run the plant and for that it cannot be said that the coal is a raw material for manufacturing sponge iron, billets and HR Coil. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the law laid down in the previous decision undermines the Constitutional authority and respect of the High Court. Indeed, while the former conduct has repercussions on an individual case and on a limited number of persons, the latter conduct has a much wider and more disastrous impact. It is calculated not only to undermine the Constitutional authority and respect of the High Court, generally, but is also likely to subvert the Rule of Law and engender harassing uncertainty and confusion in the administration of law. 41. The Hon'ble Supreme Court in the case of Union of India and others vs. Kamlakshi Finance Corporation Ltd., AIR 1992 SC 711, in paragraph 6 has observed as follows: The High Court has, in our view, rightly criticized the conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any authority or the Tribunal refuses to follow any decision of the High Court on the above grounds, it would be clearly guilty of committing contempt of the High Court and is liable to be proceeded against. 45. Needless to say that if the Tribunal and authorities functioning within the territorial jurisdiction of the High Court would not follow the order of the High Court that will lead to chaos. Everybody would be then seeking interpreting the law according to their own whims and fancies. In such situation, lawyers may confuse not knowing how to advise their clients. The general public would be in dilemma as to what is the correct position of law. As a result, the judiciary would lose its credibility. 46. It may be noted that it is not the case of the Assessing Authority that the decision of this court in Bhusan Power and Steel Ltd. (supra) has been stayed or varied by the Hon'ble Supreme Court. Therefore, the Assessing Authority cannot refuse to follow the judgment of the High Court on the ground that a challenge has been made to the judgment of this Court in the Hon'ble Supreme Court and the same is pending. Hence, the Assessing Authority is clearly guilty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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