TaxTMI 
TaxTMI 
2012 (11) TMI 835
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.... passed by the opposite party-Deputy Commissioner of Commercial Taxes, Bhubaneswar Circle-III, Bhubaneswar, Khurda under Section 43 of the Orissa Value Added Tax Act, 2004 (for short, "OVAT Act") for the period 01.04.2011 to 30.06.2011 raising a demand of Rs. 11,32,49,874/- which includes penalty of Rs. 7,54,99,916/- levided under Section 43(2) of the OVAT Act. Similarly, Annexure-1 attached to W.P.(C) No.1686 of 2012 is the assessment order passed by the opposite party-Deputy Commissioner of Commercial Taxes, Bhubaneswar Circle-III, Bhubaneswar, Khurda under Section 43 of the OVAT Act for the period 01.07.2011 to 30.09.2011 raising a demand of Rs. 14,68,62,843/- which includes penalty of Rs. 9,79,08,562/- levied under Section 43(2) of the OVAT Act. 3. Since the issues involved in both the writ petitions are identical, they are dealt with together. 4. Petitioners' case is that the petitioner-company is a Central Government Public Sector Undertaking under the Administrative Control of the Ministry of Mines, Government of India, having its Corporate Office at NALCO, Plot No.P/1, NALCO Bhawan, Nayapalli, Bhubaneswar, Dist: Khurda. It is an integrated establishment consisting ....
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....ng/communicating the information to the petitioner which was in the possession of Assessing Officer. The said information was also not indicated on the body of the order while completing the assessment proceeding under Section 43 of the OVAT Act. 7. Dr. Pal, learned Senior Advocate emphatically submitted that the input tax credit on the purchase of coal etc. is to be set off and/or adjusted against the output tax under the OVAT Act on the final products, i.e., aluminum, aluminum ingot etc., which are sold in the market. Referring to Section 2(25) of the OVAT Act, it was submitted that 'input' means any goods purchased by a dealer in the course of his business for resale or for use in the execution of the works contracts or in the processing or manufacturing where such goods directly goes into composition of finished product or packing of goods for sale and includes consumables directly used in such processing or manufacturing. Further referring to Sections 20(1) and 20(8)(k) of the OVAT Act, Dr. Pal, submitted that no input tax credit shall be claimed by or be allowed to a registered dealer in respect of input or capital goods other than those covered under Schedules A, C and D ....
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....antity of electrical energy is required during electrolysis process and then only the aluminum which is a commercial product saleable in the market is produced. Therefore, the electrical energy generated in the captive power plant is not the final product which is sold in the market. Aluminum, aluminum ingots and other aluminum products are sold @ 4% as provided under Sl.No.9 of Part-II of Schedule B under the OVAT Act and input tax credit can be allowed only against the sale of aluminum, aluminum ingots etc. which are taxable under the OVAT Act. Generation of electrical energy in its own captive power plant is neither meant for sale in the market and necessarily are not sold in the market but are used ranging from 95 to 99% only in the process of manufacture of aluminum, aluminum ingots etc. by using such energy in the smelter plant through electrolysis process. 10. Placing reliance on the judgment of this Court in the case of Reliance Industries Limited vs. Assistant Commissioner of Sales Tax, (2008) 15 VST 228, Dr. Pal submitted that disallowance of input tax credit as made by the Assessing Officer is not correct. Placing reliance on the judgment of the Hon'ble Supreme Cou....
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....efore, the potline is kept in operation for 24 hours a day without any interruption of power supply. It is further submitted that the decision of the Hon'ble Supreme Court in the case of Deputy Commissioner of Sales Tax (Laws), Board of Revenue (Taxes) Ernakulam vs. Thomas Stephen & Co. Ltd., 69 STC 320 has no application in the present case as the definition of 'input' appearing in Section 2(25) of the OVAT Act includes consumables directly used in such processing or manufacturing. 14. Mr. R.P. Kar, learned Standing Counsel appearing for the Revenue submitted that there is no infirmity or illegality in the order passed by the sole opposite party-Deputy Commissioner of Commercial Taxes, Bhubaneswar Circle-III, Bhubaneswar in disallowing input tax credit under the OVAT Act in respect of purchase of coal, alum, caustic soda, and other consumables etc. used for manufacture of electrical energy in Captive Power Plant. Placing reliance upon the judgment of the Hon'ble Supreme Court in the case of Solaris Chemtech Ltd., (Supra), Mr. Kar submitted that any operation in course of manufacture, only if integrally connected with the operation which results in the emergence of manufactur....
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....integrated establishment consisting of three units, namely, (a) Aluminum Refinery Plant, (b) Aluminum Smelter Plant, and (c) Captive Thermal Power Plant. These three plants have been set up to manufacture the finished product i.e. aluminum, aluminum ingots and sheets etc. 18. The opposite party-Deputy Commissioner of Commercial Taxes in the assessment order has observed as follows: "In the instant case the assessee company is carrying business in manufacturing and selling of alumina and aluminum ingots & sheets etc. This assessee company has three nos. of units in the State of Odisha, they are involved in mining and refining of the mineral from which alumina is produced at Damanjodi units and transferred to second unit i.e. smelting plant at Angul. The third unit is captive power plant, power generating unit at Angul, which supplies electricity power to smelting plant for manufacturing aluminum ingots, wires and sheets for sale" 19. It is nobody's case that the petitioner is engaged in producing and selling of electricity. The admitted case is that the petitioner is carrying on business in manufacturing and selling of aluminum, aluminum ingot and sheet etc and to ....
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....chasing such goods on behalf of such dealer. "Input tax credit" as defined under Section 2(27) of the OVAT Act means the setting off of the amount of input tax or part thereof under Section 20 against the output tax, by a registered dealer other than a registered dealer paying turnover tax under Section 16. 24. On a conjoint reading of Section 2(25), Section 2(26) and Section 2(27) of the OVAT Act, it is amply clear that a registered dealer under the OVAT Act shall be entitled to set off the tax paid on the purchase of goods effected by such dealer either for resale or for use in execution of works contract or for manufacture and processing against the output tax, that is the tax payable on sale of any taxable goods. 25. In the present case, the petitioner is engaged in manufacturing of aluminum, aluminum ingot and sheet etc. and in order to manufacture the above goods the electrical energy is required. The process of manufacturing of aluminum reveals that energy is required in such process of manufacturing. To generate energy/power, coal, alum, caustic soda and other consumables etc. are necessary which the petitioner purchases on payment of tax. 26. It is not disputed th....
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....d product" and "directly used for manufacturing or processing of finished products" are not one and the same thing. There is a clear distinction between the two. In the former, while the goods directly go into the composition of finished products, in the latter the goods are directly used in manufacturing/processing of the finished products. Therefore, coal, alum, caustic soda and other consumables etc. which are used for manufacturing/generating of electrical energy, are inextricably connected with the manufacturing process of aluminum and aluminum ingots; they are nothing but input and tax paid on purchase of such input shall qualify for set off against output tax paid/payable on sale of finished products. There is no dispute that coal, alum, caustic soda and other consumables etc. are used to generate electricity through Captive Power Plant which is admittedly used for the purpose of manufacturing the end/finished products viz. aluminum, aluminum ingots and sheets etc. Therefore, coal, alum, caustic soda and other consumables etc. can only be termed as input in terms of Section 2(25) of the OVAT Act. 30. In the case of Reliance Industries Ltd. (supra), this Court held as unde....
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.... processing or manufacturing, where, such goods directly goes into composition of finished products and includes consumables directly used in such processing or manufacturing. It will appear therefore that the definition of 'input' comprises four different types of articles viz. articles or goods for resale, goods used in the execution of works contract, goods used in processing or manufacturing, where such goods directly goes into composition of finished products and consumables directly used in such processing or manufacturing. Separately, by an inclusive definition consumables which are directly used in such processing or manufacturing have been included. Therefore, the inclusive definition does not refer to any goods which must be used in processing or manufacturing where such goods directly go into composition of finished products. As per inclusive definition, the only requirement is that the consumables are directly used in such processing or manufacturing. 'Consumables' need not be required to directly go into composition of finished products. The very expression 'consumables' postulates that such articles are destroyed or used upon the processing or manufacturing of good....
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....n'ble Supreme Court was, whether the fuel such as natural gas, furnance oil, diesel oil and naphtha to generate electricity which was then used in the manufacturing process of the finished products like caustic soda, industrial chemicals, etc would come under meaning of the expressions 'raw materials', 'processing materials' or 'consumables stores' for the purpose of section 15 B of the Gujarat Sales Tax Act, 1969 and while remanding back the said batch of cases to the Hon'ble High Court of Gujarat, the Hon'ble Supreme Court further observed that whether for determining this question the test to be applied would be the 'test of essentiality' or the 'test of dependency' laid down by the Hon'ble Supreme Court in the case of Collector of Central Excise vs. Ballarpur Industries Ltd (1990) 77 STC 282 and in J.K. Cotton Spinning & Weaving Mills Co. Ltd. (supra), or the test laid down by the Hon'ble Supreme Court in Coastal Chemicals Ltd. vs. Commercial Tax Officer, A.P. and others, (2000) 117 STC 12. 34. The High Court of Gujarat in the case of AMI Pigments Pvt. Ltd. and others vs. State of Gujarat and another, [2010] 32 VST 97 (Guj) by applying the "test of essentiality" and the "tes....