1999 (10) TMI 599 - SC - VAT / Sales Tax

Natural gas as manufacturing input: whether it counts as 'consumables' u/s5-B(1) for concessional sales tax, denied

The dominant issue was whether natural gas used in a manufacturing process qualified as 'consumables' to claim the concessional tax rate under s. 5-B(1) ... Consumables - concessional rate of tax under section 5-B(1) - use as fuel versus use as raw material/input - contextual interpretation of statutory phrase by reference to neighbouring wordsConsumables - concessional rate of tax under section 5-B(1) - use as fuel versus use as raw material/input - Whether natural gas used as fuel in the manufacture of paper qualifies as a 'consumable' under section 5-B(1) of the Andhra Pradesh General Sales Tax Act, 1957 and is therefore entitled to the concessional rate of tax - HELD THAT: - The Court construed the word 'consumables' in section 5-B(1) by reading it in the context of its neighbouring expressions - 'raw material', 'component part', 'sub-assembly part' and 'intermediate part' - and held that it denotes material utilised as an input in the manufacturing process which is consumed and not identifiable in the final product. That contextual reading confines 'consumables' to materials that 'tend to the making of the end-product'. The Court relied on the reasoning in Thomas Stephen & Co. that fuel which does not form part of or contribute to the making of the end-product is not a 'consumable' within the meaning of the provision. Applying that principle, the natural gas used by the appellant as fuel for manufacture was held not to be a 'consumable' because it does not form or become part of the manufactured product and therefore does not fall within the concessional tax category under section 5-B(1). [Paras 6, 7, 8]Natural gas used as fuel in the appellant's manufacturing process is not a 'consumable' within section 5-B(1) and is not entitled to the concessional rate of taxFinal Conclusion: The appeals are dismissed; the High Court's decision upholding denial of the concessional rate for natural gas used as fuel is affirmed. Issues:1. Interpretation of the term 'consumables' under section 5-B(1) of the Andhra Pradesh General Sales Tax Act, 1957.Analysis:The judgment by the Supreme Court dealt with the interpretation of the term 'consumables' under section 5-B(1) of the Andhra Pradesh General Sales Tax Act, 1957. The appellant had purchased natural gas from the Oil and Natural Gas Commission for manufacturing paper products and claimed a concessional tax rate under section 5-B(1). The High Court, relying on a previous judgment, held that natural gas did not fall under the definition of 'consumables.' The Supreme Court analyzed various judgments but found none directly relevant to the specific issue at hand. The Court emphasized that 'consumables' must be materials used in the manufacturing process but not identifiable in the final product as they get consumed during production. The Court referred to a previous case involving cashew shells used as fuel, where it was held that consumption must occur in the manufacturing process. Applying this reasoning, the Court concluded that natural gas, not being essential to the final product, did not qualify as a 'consumable.'In conclusion, the Supreme Court dismissed the appeal, upholding the High Court's decision and ordering the appellant to pay costs. Another appeal related to the same issue was also dismissed in light of the main judgment. The judgment provides clarity on the interpretation of 'consumables' for tax purposes and establishes the criteria for determining whether a material qualifies as a consumable in the manufacturing process.