TMI Blog2023 (1) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of assessment, that are amenable to statutory appeal, and in one case an appellate order as well and hence, a preliminary submission has been raised assailing the very maintainability of these Writ Petitions - the question raised in these Writ Petitions revolves around an interpretation of the statutory provisions, specifically touching upon the eligibility or otherwise to ITC. The facts are undisputed. The authorities have, including the appellate authority, adopted the categoric view that the petitioners are not entitled to ITC in a situation where they have merely manufactured/purchased and consumed, an exempt product, though admittedly, such exempt product is not sold as an independent commodity, barring in one case. The authorities, as revealed by the submissions of the Revenue and the stand taken in the impugned orders, have revealed their propensity to adopt a view that bypasses the spirit of the statutory provisions and scheme of the Act. The writ petitions are thus held to be maintainable. Reversal of ITC on furnace oil used as fuel - HELD THAT:- Section 19(2) permits grant of ITC on any goods purchased and used as input in the manufacturing or processing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional Government Pleader COMMON ORDER A common issue arises in these Writ Petitions that are hence disposed by way of a consolidated order. Detailed submissions of Mr.Prasad and Mr.Rajasekar, learned counsel for the petitioners and Mr.Harsha Raj, learned Additional Government Pleader for the respondents have been heard and duly taken into consideration. Facts in relation to each of the writ petitions: 2. The prayer in the Writ Petitions filed by Sri Kannapiran Mills Limited (SKML) is for a quash of an order of assessment made by the first Respondent Assistant Commissioner (R1) and confirming of the same by the third respondent Joint Commissioner (R3) in terms of the provisions of the Tamil Nadu Value Added Tax Act, 2006 (in short TNVAT Act ) for the period 2006- 07 as well as the clarification issued by the Commissioner of Commercial Taxes clarifying that the purchase of furnace oil is taxable at 4%. 3. The issue relates to disallowance of Input Tax Credit (ITC) for the months of January to May, 2007 specifically ITC availed on purchase of furnace oil for production of electrical energy. SKML is a Public Limited Company engaged in the manufacture of cotton ya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des this, the process itself involves heating of various elements at high temperatures. Thus, in order to ensure continuous chemical reaction at every stage, TNPPL requires supply of electricity in addition to that received from the TNEB grid. A CPP was thus set up that utilizes furnace oil for the generation of electricity. ITC was claimed by TNPPL on the tax paid on purchase of Furnace Oil. 10. In the affidavit filed in support of W.P.No.28853 of 2010 in the case of TNPPL, the chemical processes carried on requiring uninterrupted power supply are as follows: Illustratively, in the Pacol process which is one process in the production stream, there is a necessity to remove hydrogen molecules from Paraffin. This requires hearing of the process stream at a very high temperature. Thereafter, before the process stream enters the next stage, namely, the Detergent Alkylation section, the process stream has to be cooled. This is done by operating fans which helps to cool the process stream. If the process stream is not cooled, the same remains at high temperature and would prove to be hazardous. Besides, the process would stop and it would be difficult to recover the product. Besi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expeditious disposal, the stay granted was vacated, the respondent was directed to continue with proceedings for assessment and complete the same within a period of four weeks. The petitioner was protected from coercive recovery proceedings under the order impugned in that Writ Petition, until further orders. 15. Now the petitioner brings to note that, in fact, an assessment had been made for the period 2007-08 under Section 22(2) on 10.09.2009 itself accepting the returns filed by the petitioner company. This had not been brought to the notice of the Court at the time of disposal of the earlier writ petition. 16. Taking advantage of order dated 25.10.2019, the respondent issued a notice on 26.11.2019 proposing to revise the assessment dated 10.09.2009, re-determining the total and taxable turnover under Section 22(4) and simultaneously proposing reversal of ITC on furnace oil, capital goods and exempted sales. What is addressed in the present order is only the reversal of ITC on fuel, and submissions have been advanced solely in this regard. 17. The submissions are that the furnace oil has been used as an input fuel for production of hot air in the hot air generator a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ors . ((2009) 22 VST 615) v) Gearcase India V. Commercial Tax Officer and another ((2010) 28 VST 468) vi) Tulsyan NEC Ltd V. Assistant Commissioner (order dated 06.11.2019 in W.P.No.26960 of 2014) vii) Thiagarajar Mills V. Additional Commissioner CT ((2018) 54 GSTR 420) viii) Saurashtra Calcine Bauxite V. State of Gujarat ((1993) 91 STC 435) ix) Partap Steel Rolling Mills V. State of Punjab ((2007) 9 VST 629) x) Reliance Industries V. Assistant Commissioner State Tax Ors . ((2008) 15 VST 228) xi) AMI Pigments Ors. V. State of Gujarat ((2009) 22 VST 569) xii) AMI Pigments Ors. V. State of Gujarat ((2010) 32 VST 97) xiii) National Aluminium Company V. Deputy Commissioner, Commercial Tax ((2012) 56 VST 68) xiv) Brahmaputra Metalics V. State of Jharkhand ((2019) SCC Online 816) 22. Per contra, it is the submission of learned Additional Government Pleader that the mere production of power, though not as a finished and final product, would still attract the bar under Section 19(5)(a) to disentitle the petitioner from the claim of ITC. 23. It is immaterial whether the power generated is sold as a final product, as, the intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 27. This issue is one that can well be considered under Article 226 of the Constitution of India as, in the considered view of the Court, the authorities, as revealed by the submissions of the Revenue before me and the stand taken in the impugned orders, have revealed their propensity to adopt a view that bypasses the spirit of the statutory provisions and scheme of the Act. The writ petitions are thus held to be maintainable. Discussion on merits 28. I now address the merits of the matter in regard to eligibility to ITC. In the case of the petitioner in W.P.Nos.170 and 3649 of 2020, we are concerned with the reversal of ITC in relation to the use of fuel purchased as an industrial input. In the cases of the petitioners in W.P.Nos.4407 and 4408 of 2008 and 28853 of 2010, we are concerned with utilization of the electricity generated, albeit exclusively, in the manufacturing process. In W.P.Nos.170 and 3649 of 2020, the issue that arises concerns the reversal of ITC on furnace oil used as fuel. 29. The Tamil Nadu General Sales Tax (Amendment) Act, Act 2 of 1970 sets out the statement of objects and reasons for insertion of new Section 7A in the 1959 Act. The inser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng capital goods purchased by a dealer in the course of his business; (24) input tax means the tax paid [or payable under this Act Inserted[ in the manner prescribed] by a registered dealer to another registered dealer on the purchase of goods including capital goods in the course of his business 19. Input tax credit .-- (1) There shall be input tax credit of the amount of tax paid Omitted[or Payable] under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule : Provided that the registered dealer, who claims input tax credit, shall establish that the tax due On such purchases has been paid by him in the manner prescribed. Provided that the registered dealer, who claims input tax credit, shall establish that the tax due On purchase of goods has actually been paid in the manner prescribed by the registered dealer who sold such goods and that the goods have actually been delivered Provided further that the tax deferred under section 32 shall be deemed to have been paid under this Act for the purpose of this sub-section. (2) Input tax credit shall be allowed for the purchase of goods made within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el purchased as an input for use in power generation came to be considered by several Courts. I now proceed to discuss some of the decisions relied upon at the Bar. 39. In the case of Saurashtra Calcine Bauxite (supra) the statutory provision considered was Section 5A of the Gujarat Sales Tax Act, 1969. The Court considered the import of its earlier judgments in the cases of J.K.Cotton Spinning Weaving Mills Co. Ltd. V. The Sales Tax Officer, Kanpur and another (16 STC 563) and Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam V. Thomas Stephen Co. Ltd. (69 STC 320). 40. The question that arose in these two cases was whether the furnace oil used must be regarded as a mere fuel and not as processing material. On an overall consideration of the matter, the Court held in favour of the assessee concluding that the authorities were not justified in taking a view that furnace oil is used only as fuel and not as a processing material within the ambit of Rule 42A of the Gujarat Sales Tax Rules. There is no dispute in the present cases, either by way of pleading or argument that the fuels used do not constitute industrial input. 41. In Partap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w material which reads as under:- Section 2(34). Raw material means goods used as an ingredient in the manufacture of other goods and includes preservatives, fuel and lubricant required for the process of manufacture. 45. A lower rate of tax had been paid on diesel as a raw material used in the manufacture of final product. The Assessing Officer had held that since diesel was not used directly for the manufacture of the final product, the benefit of low tax claimed by the petitioner was not liable to be accepted. The Court noticed that there was a list of raw materials that had been annexed to the Registration Certification of that petitioner which included fuel and lubricants and, in light of such provision in Section 2(34), accepted the assessee s claim for lower rate of tax. 46. In Reliance Industries Ltd. (supra), the question that arose was whether furnace oil was a consumable that qualified to be an input for the purpose of availing ITC. The definition of input tax and ITC in Sections 2(25), 2(26) and 2(27) of the Orissa Value Added Tax act, 2004 (in short OVAT Act ) were interpreted, with the Court coming to the conclusion that furnace oil was, indee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar dated 19.02.2001 issued pursuant to the judgment of the Hon ble Supreme Court in Coastal Chemicals Limited could not be disturbed. 50. As against this decision, the State of Gujarat went in appeal and in the judgment of the Hon ble Supreme Court reported in 22 VST 615, State of Gujarat V. AMI Pigments (supra), the Hon ble Supreme Court by way of a short judgment remanded the matters to the High Court directing the Court to decide the questions without reference to either Circular, i.e., Circular dated 19.02.2001 or Circular dated 02.09.2005. 51. Inter alia, they referred to the tests of essentiality or dependency that had been applied by the Hon ble Supreme Court in the cases of J.K.Cotton and Ballapur Industries (supra) to decide whether the expressions raw material or processing material or consumable store would cover fuels, such as, naptha, liquid diesel oil, natural gas or others. They clarified at placitum 6 at page 618 of the VST report that the fuels consumed in that case constitute natural gas, furnace oil, diesel oil and naptha. Broadly, such fuels are used by industry for carrying on manufacturing process and in most of such cases the fuels generate ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input fuel nor electricity generated, have been sold as an independent commodity. In that exceptional case, the commodity has suffered the rigour of taxation per regular application of the Act. 57. The revenue has cited the judgment in the case of Thomas Stephen (supra) which had dealt with the levy of tax under the Kerala General Sales Tax Act, 1963 on consumption of goods. The provisions of Section 5A dealt with, read as follows: 5-A. Levy of purchase tax-(1) Every dealer who, in the course of his business, purchases 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) disposes of such goods in any manner other than by way of sale in the state; or (c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of inter-state trade or commerce, shall, whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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