TaxTMI 
TaxTMI 
2008 (5) TMI 620
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....der the OVAT Act. It manufactures polyester staple fibres (hereinafter referred to as, "the PSF") through Orissa Poly-fibres Limited on job-work basis, out of mono ethylene glycol (hereinafter referred to as "the MEG") and pure teraphthallic acid (hereinafter referred to as "the PTA") and polymer chips at Dhenkanal. The said materials are brought from outside the State of Orissa either by way of stock transfer or by way of inter-State trade or commerce. It has filed its return regularly under the OVAT Act for the financial year 2005-06. The petitioner claimed input tax credit to the tune of Rs. 83,81,744 for the financial year 2005-06 out of which the petitioner availed input tax credit to the tune of Rs. 69,36,982 against the output tax under the OVAT Act. On January 9, 2006, the Sales Tax Officer, Angul, issued a letter to the petitioner directing it to pay Rs. 47,26,908 on the ground that the claim made by the petitioner for input tax credit on furnace oil was not admissible. Subsequent thereto by an order dated February 6, 2006, the ACST issued an order of suspension of registration certificate to the petitioner under the OVAT Act on the ground that the petitioner had knowingl....
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....t was suspended on the ground that the petitioner had knowingly furnished incorrect particulars claiming input tax credit on furnace oil, the same being not directly used in manufacturing process but was used as a fuel for burning. By restoring the registration certificate vide his order dated February 24, 2006, the ACST exonerated the petitioner from the said charges. Thereafter, the ACST lacks jurisdiction to pass the impugned order. The further case of the petitioner is that section 30 of the OVAT Act makes provision for suspension of registration of a dealer. In a proceeding initiated under section 30 of the OVAT Act the ACST cannot arrogate himself the jurisdiction of making assessment. He further submitted that furnace oil is used as a consumable directly in processing or manufacture of finished product. "Input" is defined as any goods purchased by dealer in course of his business for resale or for use in execution of works contract, in process or manufacturing where such goods directly goes into the composition of finished product or packing of goods for sale and includes consumable directly used in such process or manufacture. Furnace oil is used as a consumable for heating....
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....d on purchase of furnace oil cannot be included in input tax for adjustment against VAT payable on sale of finished product. According to him, provisions contained in section 2(25) of the OVAT Act envisaged that goods which directly go into composition of finished product and consumables which are directly used in such manufacturing or processing would qualify for being treated as input. The use of the words "such processing or manufacturing" if read ejusdem generis would mean that the consumable must be consumed directly in the process of manufacturing or processing like goods which directly go into the composition of finished products. He further argued that the consumable must partake character of goods which go into composition of finished product but the same being consumed in the process of manufacture does not have its trace remnant in the ultimate finished product. The word "directly" used twice in the said definition as adjective to goods and consumables has its own significance and those articles alone which are put into process of manufacturing with the raw materials will only be taken as an input. The other articles which get consumed indirectly in the process of manufa....
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....heat from the flame on burning of furnace oil, goes into the processing tank and again is sent back to the "dow" condenser tank for reprocessing. But the furnace oil by itself does not go into the actual process of manufacturing. In support of his contention that the furnace oil cannot be treated as a category of consumable, the learned counsel relied on the following decisions of the honourable Supreme Court and different High Courts: (i) Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC). (ii) Delta Paper Mills Ltd. v. Oil and Natural Gas Commission [1991] 81 STC 339 (AP). (iii) Coastal Chemicals Ltd. v. Commercial Tax Officer [2000] 117 STC 12 (SC). (iv) Union of India v. Ahamedabad Electricity Co. Ltd. [2004] 134 STC 24 (SC). In view of such rival contentions, the questions which fall for consideration by this court are as follows: (i) Whether exhaustion of statutory remedy can be a bar in this case for this court to exercise its jurisdiction under article 226 of the Constitution? (ii) Whether exercising power under section 30 of the OVAT Act, the ACST assumes jurisdiction to make assessment? (iii) Whether the furnace oil which is used ....
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....saction in respect of which the sales tax has been assessed by the Sales Tax Officer, the High Court should have dealt with the matter instead of sending the assessee to avail of the remedy of appeal under the Sales Tax Act. As such the honourable Supreme Court set aside the judgment of the High Court and remanded the matter to the High Court for decision on merits. Similarly, in Union of India v. State of Haryana reported in [2000] 10 SCC 482, a question came up for consideration whether alternative remedy is an adequate remedy in the context of the sales tax assessee/assessment. In that case the question was whether the sales tax authorities can assess sales tax on rental which was charged by the Union of India for supply of telephones. The Union of India filed writ petitions before the respective High Courts challenging the levy. Those writ petitions were dismissed in view of alternative remedy in form of statutory appeal. In that context the honourable Supreme Court held that the High Courts should not have dismissed the petitions as the questions raised were purely questions of law which required determination whether the provision of telephone connections and instruments am....
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....), 2(26) and 2(27) of the OVAT Act, respectively. The said sections are reproduced below: "Section 2(25) 'input' means any goods purchased by a dealer in the course of his business for resale or for use in the execution of works contract, in processing or manufacturing, where, such goods directly goes into composition of finished products or packing of goods for sale, and includes consumables directly used in such processing or manufacturing. Section 2(26) 'input tax' in relation to any registered dealer means the tax collected and payable under this Act in respect of sale to him of any taxable goods for use in the course of his business, but does not include tax collected on the sale of goods made to a commission agent purchasing such goods on behalf of such dealer. Section 2(27) 'input tax credit' in relation to any tax period 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;" "Input" has been defined in section 2(25) to mean that any goods purchased by a dealer in the course of his business for resale or f....
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....oil, the manufacture of PSF becomes commercially inexpedient. Now the question that arises for consideration is whether the furnace oil is a "consumable" within the meaning of section 2(25) of the OVAT Act. The expression "consumable" has not been defined in the OVAT Act. In the absence of any such statutory definition the expression has to be understood in the meaning assigned to it by various dictionaries and how it is understood in trade and commerce. "Consumable", according to Webster Dictionary means that which can be consumed, a consumable commodity. "Consume" means to eat, use up, and destroy. According to Shorter Oxford Dictionary "consumable" means capable of being consumed by fire. The term "fuel" according to Webster Dictionary means any material as coal, oil, gas, wood, etc. Which is burnt to supply heat or power. According to Shorter Oxford Dictionary "fuel" means material for burning combustible matter for fires. According Micropaedia Britannica Volume 5, oil is also called fuel oil and it is used primarily for steam boilers in power plants, on board ship, and in industrial plants. The process of manufacturing as indicated above in the engineering flow-chart....
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....ls which are burnt up or consumed in chemical reactions is also the material used in processing or manufacturing. In the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563, the honourable Supreme Court held that the expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods". The honourable Supreme Court further held that in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed, cleaned and pressed. All these processes would be regarded as integrated processes and included "in the manufacture" of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior ....
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....ot be manufactured. In Saurashtra Calcine Bauxite [1993] 91 STC 435, a Division Bench of the Gujarat High Court held that furnace oil which is used to produce heat in the process of calcinations of raw bauxite into calcined bauxite is not merely a fuel but a processing material. The main contention of the Revenue is that furnace oil used by the dealer is to produce flame and therefore it is fuel and not consumable which directly goes into the composition of finished product. Learned counsel for the Revenue relied upon the case of Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC). In that case, the dealer used cashew shells as fuel for manufacturing its products. It also purchased lime shells and consumed stores which it used in the maintenance of its kiln and factory. The question before the court was whether cashew shells and lime shells and consumed stores are liable to be taxed under section 5A(1)(a) of the Kerala General Sales Tax Act, 1963. The Tribunal held that as the cashew shells had been used only as fuel in the manufacture of tiles and other goods, section 5A(1)(a) of the Kerala General Sales Tax Act was not satisfied as there was no consumption of the cashew shells in....
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....g in the said Act every dealer shall pay in respect of any sale of goods to another dealer for use by that dealer as raw material, component part, sub-assembly part, intermediate part, consumables and packing materials of any other goods which he intends to manufacture inside the State, a tax at the rate of four paise in the rupee or the rates specified in sections 5, 5A and 6B in respect of the goods other than declared goods or section 6, 6A and 6B in respect of the declared goods whichever is lower on the turnover relating to such sale. The honourable Supreme Court in the case of Coastal Chemicals Ltd. [2000] 117 STC 12 (SC) interpreting the said section 5B of the Andhra Pradesh General Sales Tax Act held that the word "consumables" used in the said provision, i.e., Andhra Pradesh General Sales Tax Act, 1957 takes colour from and must be read in the light of the words that are its neighbours, namely, raw material, component part, sub-assembly part and intermediate part. So read, the word "consumables" therein refers only to raw material which is used as an input in the manufacturing process but is not identifiable in the final product by reason of the fact that it has got consu....
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.... law that excise duty is a duty levied on manufacture of goods. Unless the goods are manufactured in India, they cannot be subjected to payment of excise duty. Honourable apex court further held that according to the definition of "manufacture" in section 2(f) of the Act, manufacture includes any process incidental or ancillary to the completion of a manufactured product. The word "manufacture" used as a verb is generally understood to mean bringing into existence a new substance; it does not mean merely to produce some change in a substance. Manufacture implies a change, but every change is not manufacture; something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use. Manufacture may involve various processes. The natural meaning of the word "process" is mode of treatment of some material in order to produce a good result. Every process which is incidental or ancillary to the completion of the manufactured product is included within the meaning of manufacture. "Process" is an activity performed on a given material in order to transform it into something new. Thus, the decision of the hono....
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.... Supreme Court in Thomas Stephen & Co. Ltd.'s case [1988] 69 STC 320 were different from the provisions of rule 29(xii) of the Rules, which are under consideration in the present case. Accordingly, the principles laid down in that case would not be of any help to the respondent. 24.. As far as the judgment of the honourable Supreme Court in Coastal Chemicals Ltd.'s case [2000] 117 STC 12 (SC), is concerned, the same is also of no help to the respondent, as in the said judgment, the question of interpretation of an entry was there, which was interpreted by the honourable Supreme Court by applying the principles of statutory interpretation-noscitur a sociis, which is not relevant for the purpose of decision of the present case." The Supreme Court in Nandanam Construction [1999] 115 STC 427 case has approved the decision in the case of Ganesh Prasad Dixit's case [1969] 24 STC 343 and partly overruled the earlier decision of the Supreme Court in Pio Food Packers' case [1980] 46 STC 63. Therefore, cases relied on by the counsel for the department are not of much assistance to the opposite parties. In view of the proposition of law laid down by the honourable ap....
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....oyed or used upon the processing or manufacturing of goods. It is because of this reason that while consumables by an inclusive definition are included in the definition of "input" under section 2(25) of the VAT Act, the Legislature did not insist upon the requirement which appears in the earlier clauses that such goods must go into composition of finished products. When the Legislature does not insist upon such requirement, the insistence by opposite party No. 1 that consumables must go directly into composition of finished product is totally misconceived and runs contrary to the very definition of "input" under section 2(25) of the VAT Act. The ACST, in the impugned order referring to the decision of the Kerala High Court in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Pio Food Packers [1978] 41 STC 364 and Notification No. 17800-CTA-19/2005F bearing S.R.O. No. 209/2005 dated April 4, 2005 of the Government of Orissa reached a conclusion that furnace oil is not an "input" which directly goes into composition of finished product of the dealer, i.e., PSF and, therefore, the dealer is not entitled to avail input tax credit in the said item, i.e., ....