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2016 (4) TMI 717 - GUJARAT HIGH COURT

2016 (4) TMI 717 - GUJARAT HIGH COURT - [2016] 91 VST 250 (Guj) - Classification - Whether the pet coke used in the manufacture of cement is ‘raw material’ as contended by the dealer, or ‘fuel’ as contended by the appellant - Held that:- it appears that the pet coke used in the manufacture of cement, during the course of the manufacturing process gives rise to an exothermic reaction, as a result whereof it loses its apparent identity and forms part of the end product. Essentially, therefore, pet .....

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be admitted on a similar question of law, it may be noted that the Deputy Commissioner in the assessment order has categorically recorded that the said decision would not be applicable to the facts of the present case. Similarly, the first appellate authority, viz. the Joint Commissioner of Commercial Tax has also held that the decision in the case of M/s Welspun Steel Ltd. cannot be made applicable to the present case as the same relates to the use of pet coke in the manufacture of sponge iron .....

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rise to a substantial question of law. - The Tribunal, after appreciating the material on record, has found as a matter of fact that coke/pet coke used in the VSK technology is not used as a fuel but as part of feed stock and its components form part of the product, that is, clinker and that without this raw material, the product clinker cannot be manufactured. It is not the case of the appellant that the findings of fact recorded by the Tribunal are, in any manner, perverse to the record o .....

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therefore, did not commit any error in holding that pet coke is not used as fuel but is used as raw material in the manufacture of cement. The impugned order, therefore, does not suffer from any legal infirmity. - Decided in favour of respondent - TAX APPEAL NO. 968, 969 of 2015, CIVIL APPLICATION (OJ) NO. 809 of 2015 - Dated:- 8-3-2016 - MS. HARSHA DEVANI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MS NISHA THAKORE and MS MAITHILI MEHTA, ASSTT. GOVERNMENT PLEADER FOR THE RESPONDENT : MR TUSHAR .....

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stions stated to be substantial questions of law: [1] Whether the Hon ble Tribunal has erred in law and in facts in holding that petroleum coke was not used as fuel in the process of manufacturing cement as per section 11(3)(b)(iii) of the Act? [2] Whether the Hon ble Tribunal has erred in law and in facts in deleting levy of interest and penalty? 2. Since both the appeals arise out of a common order of the Tribunal and the parties as well as the facts are also common, they were taken up for hea .....

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so manufactured but does not include fuels for the purpose of generation of electricity. 3.2 Section 11 of the GVAT Act makes provision for tax credit . Clause (a) of sub-section (11) provides that a registered dealer (hereinafter referred to as the purchasing dealer ) who has purchased the taxable goods shall be entitled to claim tax credit equal to the amount of - (i) tax collected from the purchasing dealer by a registered dealer from whom he has purchased such goods or the tax payable by the .....

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lated in such manner as may be prescribed. 3.3 Clause (a) of sub-section (3) of section 11 of the GVAT Act provides that subject to the provisions of that section, tax credit to be claimed under sub-section (1) shall be allowed to a purchasing dealer on his purchase of taxable goods which are intended for the purpose of- (i) sale or re-sale by him in the State; (ii) sale in the course of inter-State trade and commerce, other than the sales in the course of export out of the territory of India; ( .....

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to clause (vi) of clause (a) of section 11 of the GVAT Act. 3.4 Clause (b) of sub-section (3) of section 11 of the GVAT Act provides that notwithstanding anything contained in that section, the amount of tax credit in respect of a dealer shall be reduced by the amount of tax calculated at the rate of four per cent on the taxable turnover of purchases within the State - (i) Xxx (ii) Xxxx (iii) of fuels used for the manufacture of goods. 4 Therefore, by virtue of sub-section (1) and clause (a) of .....

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in respect of the fuels used in the manufacture of goods, the tax credit is required to be reduced by four per cent of the taxable turnover of purchases of such inputs. 5 The respondent - dealer is carrying on the business of manufacturing and selling of cement within the State of Gujarat as well as outside the State and is holding registration as a dealer both under the GVAT Act as well as the Central Sales Tax Act (hereinafter referred to as the CST Act ). While submitting the returns for the .....

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er, had called for audit assessment for the year 2007-08 and after due verification of all the evidence and books of accounts produced by the dealer, he worked out the said input tax credit as eligible. He further observed that the dealer had purchased petroleum coke which can be used as a substitute of coal. Coal is a fuel and therefore, 4% of the purchase price is required to be reduced as per section 11(3) of the GVAT Act. The dealer had placed reliance upon the decision of the Tribunal in th .....

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the Deputy Commissioner of Commercial Tax, the dealer carried the matter in first appeal before the Joint Commissioner of Commercial Tax. Before the Joint Commissioner, the dealer placed reliance upon the decision of the Tribunal in the case of M/s Welspun Steel Limited, 2012 GSTB 304, M/s SAL Steel Limited, 2012 GSTB 283 and M/s Saurashtra Ferrous Private Limited, 2012 GSTB 290. The Joint Commissioner observed that the decision in the case of M/s Welspun Steel Limited related to use of pet coke .....

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ich held that in the VSK technology adopted by the dealer coke/pet coke is not used as fuel but as part of the feed stock and its components form part of the product, that is, clinker and that without this raw material, the product clinker cannot be manufactured. The Tribunal was of the view that fuel is one that produces some kind of energy but does not form part of the product and it accordingly, allowed the appeals and set aside the orders passed by the authorities below in respect of reducti .....

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by the respondent, it is clear that the pet coke is necessary for the purpose of the exothermic reaction which takes place inside the kiln when it is heated externally. It is on account of this exothermic reaction that the raw material is converted into clinker. The fact that there is an exothermic reaction is clearly indicative of the fact that the petroleum coke acts as a fuel which causes such exothermic reaction. It was submitted that the petroleum coke having been used as fuel, the dealer i .....

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raw material, is a question of fact to be decided on the basis of the role attributed to the material in the whole process. It was submitted that the question as to whether a material is fuel or raw material cannot be decided on the basis of mere mixing with other raw materials or its characteristic of externally generating energy without being mixed with raw material, but the same has to be decided from the characteristic of that material and role attributed to it in the whole manufacturing pr .....

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e definition of raw material as defined under section 2(19) of the GVAT Act, it was submitted that the same expressly excludes fuel from the ambit thereof. It was submitted that from the chemical composition of the end product viz. cement, it is found that petroleum coke is not an ingredient of the final product cement but rather mixed with raw material as fuel to generate energy. It was submitted that a similar issue as regards the use of coal for the purpose of manufacture of sponge iron came .....

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on of law. Referring to the impugned order it was pointed out that the Tribunal has placed strong reliance upon the said decision, under the circumstances, this appeal also deserves to be admitted on a similar question of law. 6.2 It was further submitted that ample material was produced before the Tribunal as regards the process of manufacturing cement; however, the Tribunal, without adverting to such material, has relied upon the manufacturing process of VSK plant as supplied by the dealer. It .....

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the correct process of manufacturing of cement. It was, accordingly, urged that the appeals require consideration on the questions as proposed or as may be formulated by the court. 7. Vehemently opposing the appeals, Mr. Tushar Hemani, learned advocate for the respondent - dealer invited the attention of the court to the definition of raw material as defined under clause (19) of section 2 of the GVAT Act, which defines raw material to mean goods used as ingredient in the manufacture of other goo .....

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f section 2 of the GVAT Act and hence, the same clearly falls within the ambit of raw material as envisaged under the said provision. Reference was made to the provisions of section 11 of the GVAT Act and more particularly to sub-section (3)(b) thereof, which provides that the amount of tax credit in respect of a dealer shall be reduced by the amount of tax calculated at the rate of four per cent on the taxable turnover of the purchases within the State and of fuels used for manufacture of goods .....

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petroleum coke as raw material in manufacturing cement whereas input tax credit under section 11(3)(b)(iii) of the GVAT Act is required to be reduced only in respect of purchase of fuel. Since the dealer has used the petroleum coke as raw material in manufacturing of cement, input tax credit is not required to be reduced on consumption of such goods. Referring to the impugned order, it was pointed out that the Tribunal, upon appreciation of the evidence on record, has recorded findings of fact a .....

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mane to refer to the impugned order which describes the process of manufacture as follows: 14. .... .... The process undertaken by the appellant own as Vertical Shaft Kiln (VSK) for manufacturing clinker. For making clinker (semi finished good), the raw material like lime stone, silica, pet coke / coal, red oxide and bauxite is used. These materials are mixed in definite proportion as per the formula. They are stored as different hoppers. In different percentage mixed is fed to raw mill. The raw .....

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er the completion of the chemical reaction, it is converted into a compound consisting of all the chemical elements of the raw material into clinker. After certain period, the chemical process is completed and clinker are formed. These clinker yard clinkers are mixed with 6% gypsum and fed to cement mill. It is ground in cement mill to make cement. Then cement is stored in cement silo. It is packed through packing machine in 50 kgs. bags. These cement bags then are dispatched to the market. 10. .....

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onverted into a compound called clinker which consists of all the chemical elements of the raw material. Therefore, the chemical elements contained in pet coke also form part of the compound called clinker. 11. At this juncture, it may be germane to refer to the decision of the Supreme Court in the case of Union of India v. Ahmedabad Electricity Co. Ltd., (2003) 11 SCC 129, wherein, in a converse case where coal was simply burnt to fuel to produce steam and it was the case of the Central Excise .....

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rence between use of goods in manufacture as raw material and use for other ancillary purposes was brought out. Goods used for ancillary purposes like fuel in the process of manufacture were held not to be exigible to tax. Since cashew shells were used only as fuel and they did not get transformed into the end product they were held to be not exigible to tax. Cashew shells were used in aid of manufacture of goods and as such they did not attract levy of tax. 27. In the case in hand also, coal wh .....

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h, manipulated or transformed into the end product. For purposes of manufacture the raw material should ultimately get a new identity by virtue of the manufacturing process either on its own or in conjunction or combination with other raw materials. Since coal is not a raw material for the end product in all the cases before us, the question of getting a new identity as an end product due to manufacturing process does not arise. 29. In CCE v. Ballarpur Industries Ltd., (1989) 4 SCC 566, the raw .....

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its essential presence at the delivery end of process. What follows from this is that the raw material which we are concerned about is the raw material which is linked with emergence of the end product. It has to be present in the end product whether visibly or invisibly. Use of an item as fuel cannot be called part of the manufacturing activity in relation to production of the end product. Therefore, cinder cannot be said to be a by-product of the final product. At best it is a by-product of co .....

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s used as a raw material for the manufacture of clinker and forms an ingredient thereof. Despite the fact that Sodium Sulphate used in the manufacture of paper gets consumed and burnt up it has been held to be not a fuel but raw material; whereas, insofar as pet coke used in the manufacture of clinker, nothing has been brought on record to show that it is consumed or burnt up. Even if pet coke is consumed or burnt up in the manufacturing process, it would still not cease to be a raw material as .....

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of cement which may be facilitated by its presence, pet coke would not cease to be a raw material. 13. As regards the submission that the appeal against the decision of the Tribunal in the case of M/s Welspun Steel Ltd. v. The State of Gujarat has been admitted on a substantial question of law and the Tribunal having placed reliance upon such decision, this appeal also deserves to be admitted on a similar question of law, it may be noted that the Deputy Commissioner in the assessment order has c .....

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