2015 (11) TMI 48 - HC - VAT and Sales Tax

Court allows writ petitions, deems diesel use in generator sets for manufacturing as eligible under U.P. Trade Tax Act

The court allowed all writ petitions, setting aside the impugned orders by the Assessing Authorities. It held that the use of diesel oil in generator sets ... For use in the manufacture of notified goods - goods required for use in the manufacture - test of essentiality / test of dependency - discretionary exercise of writ jurisdiction despite alternative statutory remedy - power of assessing authority to amend or cancel recognition certificateDiscretionary exercise of writ jurisdiction despite alternative statutory remedy - pure question of law - Maintainability of writ petitions in view of availability of alternative statutory remedies under the Act - HELD THAT: - The Court applied established principles that the availability of an alternative statutory remedy is a rule of discretion, not a rule of law, and listed recognized exceptions (e.g., lack of jurisdiction, violation of natural justice, challenge to vires, pure question of law). Noting that the present disputes raise a pure question of law-interpretation of the phrase 'for use in the manufacture of notified goods' under Section 4-B(2) and that there were no material factual disputes-the Court held it was appropriate to entertain the writ petitions rather than insist on exhaustion of statutory appeals. The Court therefore rejected the preliminary objection of the respondents and exercised its discretion to hear the petitions on merits. [Paras 26]Preliminary objection on availability of alternative remedy rejected; writ petitions are entertainable.For use in the manufacture of notified goods - goods required for use in the manufacture - test of essentiality / test of dependency - power of assessing authority to amend or cancel recognition certificate - Whether diesel oil used in captive generator sets to produce electricity for running plant and machinery falls within the expression 'for use in the manufacture of notified goods' under Section 4-B(2) of the U.P. Trade Tax Act, 1948 - HELD THAT: - Relying on authoritative precedent, the Court construed 'for use in the manufacture' to encompass the entire process of converting raw materials into finished goods and to include processes or inputs so integrally connected with manufacture that without them production would be commercially inexpedient. The statutory Explanation to Section 4-B(2) expressly includes 'fuels' within 'goods required for use in the manufacture.' The Court found on the undisputed facts that generator sets (and diesel consumed therein) are essential to run plant and machinery of the petitioners-some having no supply connection and others being continuous-process industries where uninterrupted power is necessary-and that generation of power by diesel is integrally connected to manufacture. The Assessing Authorities' sole ground for deletion-that diesel produces electricity (itself a notified good) and thus is not directly a raw material for the final product-was held to ignore the Explanation and pertinent precedents which permit indirect but essential inputs to qualify. Applying the 'test of essentiality/dependency' and authorities recognizing captively consumed fuels used to generate power as inputs to manufacture, the Court concluded diesel used in the petitioners' generators falls within Section 4-B(2). Accordingly the orders deleting diesel from recognition certificates were set aside. [Paras 28, 30, 34, 44, 45]Diesel used in captive generator sets to run plant and machinery is covered by 'for use in the manufacture of notified goods' under Section 4-B(2); impugned orders deleting diesel from recognition certificates are set aside.Final Conclusion: Writ petitions allowed. The High Court entertained the petitions despite statutory appeal remedies because a pure question of law arose, and on the merits held that diesel used in captive generator sets is an integral and indispensable input covered by Section 4-B(2) (including fuels under the Explanation); the assessing authorities' orders deleting diesel from recognition certificates are set aside. Issues Involved:1. Whether writ petitions are liable to be dismissed on the ground of alternative remedy.2. Whether the use of diesel oil in generator sets to run plant and machinery to manufacture the final products as mentioned in the Recognition Certificate would qualify the essential requirement 'for use in the manufacture of notified goods' under Section 4-B(2) of the U.P. Trade Tax Act, 1948.Detailed Analysis:Issue 1: Alternative RemedyThe court acknowledged the wide discretionary powers conferred by Article 226 of the Constitution of India, emphasizing that the High Court may refuse to exercise discretion if an adequate or suitable remedy exists elsewhere. However, exceptions to this rule include instances where there is a complete lack of jurisdiction, violation of fundamental rights, or when an order is passed in violation of natural justice principles. The court cited several precedents to support this view, including *Himmatlal Harilal Mehta v. State of Madhya Pradesh* and *Union of India v. Tantia Construction (P) Ltd.* Ultimately, the court found that the present writ petitions involved a pure question of law regarding the interpretation of Section 4-B(2) of the Act, making them entertainable despite the availability of an alternative remedy.Issue 2: Use of Diesel Oil in ManufactureThe court noted that the petitioners were granted Recognition Certificates under Section 4-B(2) of the Act, which included diesel oil under the category of 'fuel.' The court found that the diesel oil used in generator sets to produce electricity, which in turn was used to run the plant and machinery, was integrally connected with the manufacture of the notified goods. The court emphasized that the entire process of manufacturing the final product required the use of diesel oil in generators, making it essential for the production process.The court referred to several precedents, including *M/s. J.K. Cotton Spinning and Weaving Mills, Co. Ltd. v. The Sales Tax Officer, Kanpur* and *Indian Farmers Fertilisers Cooperative Ltd. v. Collector of Central Excise, Ahmedabad*, to support the view that the expression 'in the manufacture of goods' encompasses the entire process of converting raw materials into finished goods. The court concluded that diesel oil used in generator sets to produce electricity for running plant and machinery falls within the expression 'for use in the manufacture of notified goods' under Section 4-B(2) of the Act.Conclusion:The court allowed all the writ petitions, setting aside the impugned orders passed by the respective Assessing Authorities. The court held that the use of diesel oil in generator sets to run plant and machinery for manufacturing the final product qualifies as 'for use in the manufacture of notified goods' under Section 4-B(2) of the U.P. Trade Tax Act, 1948.