2022 (12) TMI 129 - SC - VAT and Sales Tax

Supreme Court rules on tax rate for oxygen gas in steel manufacturing

State of Jharkhand and others Versus Linde India Limited and Another

State of Jharkhand and others Versus Linde India Limited and Another - 2023 (383) E.L.T. 3 (SC), [2022] 107 G S.T.R. 381 (SC) Issues Involved:1. Whether oxygen gas supplied by the respondent to Tata Steel is used as 'raw material' in the manufacturing process of steel, entitling the respondent to a concessional tax rate under Section 13(1)(b) of the Bihar Finance Act, 1981.2. Whether the High Court was justified in interfering with the concurrent findings of the lower authorities under Article 226 of the Constitution of India.Detailed Analysis:1. Oxygen Gas as 'Raw Material':- Background: The dispute centers on whether oxygen gas used by Tata Steel in its steel manufacturing process qualifies as a 'raw material,' thus eligible for a concessional tax rate of 2% instead of 3%. The High Court ruled in favor of the respondents, holding that oxygen is a raw material necessary for the production of steel.- Arguments by Appellants (State of Jharkhand): - The High Court erred in interfering with the findings of the lower authorities, which had classified oxygen as a 'refining agent' rather than a raw material. - Cited the decision in *State Bank of India v. K.S. Vishwanath* and *Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd.*, arguing that goods used for ancillary purposes like fuel in the manufacturing process cannot be considered raw materials. - Emphasized that oxygen's primary role is to reduce carbon content, making it a refining agent, not a raw material.- Arguments by Respondents (Linde India Limited & Tata Steel): - Oxygen is indispensable and irreplaceable in the Basic Oxygen Steelmaking (BOS) method used by Tata Steel, thus qualifying as a raw material. - Relied on the principle laid down in *Collector of Central Excise v. Ballarpur Industries Limited*, which considers the essentiality and indispensability of a product in the manufacturing process as a test for raw material. - Argued that the High Court correctly noted the use of oxygen in both stages of steel production and that a refining agent can also be a raw material if it is indispensable.- Supreme Court's Analysis: - The Court noted that a six-member expert committee had conducted a detailed inspection and concluded that oxygen is a refining agent, not a direct raw material. - The Court emphasized that the High Court should not have interfered with the concurrent findings of the lower authorities, especially given the technical nature of the issue. - The Court distinguished the case from *Ballarpur Industries Limited*, noting that the decision in *Thomas Stephen & Co. Ltd.* still holds, where goods used for ancillary purposes cannot be considered raw materials.2. High Court's Interference Under Article 226:- Arguments by Appellants: - The High Court overstepped its jurisdiction by interfering with the findings of fact recorded by the lower authorities, which were based on a detailed inspection report by experts. - The High Court lacks the expertise to decide on technical matters that were thoroughly examined by the expert committee.- Arguments by Respondents: - The High Court correctly interpreted the use of oxygen in the manufacturing process and rightly concluded that it qualifies as a raw material. - The High Court's decision was based on a detailed understanding of the manufacturing process and the indispensability of oxygen in steel production.- Supreme Court's Analysis: - The Court reiterated that the High Court, in exercising its powers under Article 226, should not act as an appellate court to re-evaluate findings of fact, especially those based on expert reports. - The Court held that the High Court erred in setting aside the findings of the lower authorities, which were supported by substantial evidence and expert opinion.Conclusion:- The Supreme Court quashed and set aside the High Court's judgment, restoring the assessment order passed by the assessing officer and confirmed by the revisional authority.- The Court concluded that oxygen gas used in steel manufacturing by Tata Steel is a refining agent, not a raw material, and thus subject to a 3% tax rate, not the concessional 2% rate.- The appeals were allowed, with no order as to costs.