State Of Gujarat & Anr vs Ami Pigments Pvt. Ltd. & Ors. Etc

CIVIL APPEAL NOS. 679-714 OF 2009 (Arising out of S.L.P.(C) Nos.5410-5445/2008)

State of Gujarat & Anr. ...Appellant(s)

Versus

AMI Pigments Pvt. Ltd. & Ors. Etc. ...Respondent(s)

ORDER

Leave granted.

These Civil Appeals are filed by the State of Gujarat against the judgment

and order of the Gujarat High Court, dated 23rd-25th & 30th April, 2007 and 28th June,

2007 in Special Civil Application Nos.9169, 9170 to 9190, 11809, 11810, 12032, 12195,

12197, 13498, 13554, 12104, 12103, 18729, 12033, 12034, 12106 of 2006 and 8158 of

2007.

Introduction

Respondent-assessees have received the benefit of exemption during the

period 2001-2005. They got that benefit under the Circular dated 19th February,

2001, which Circular was sought to be superseded by the impugned Circular dated

2nd September, 2005. The 2005 Circular was challenged before the Gujarat High

Court in number of writ petitions filed by respondent-assessees.

The controversy before us is whether the Commissioner on the

administrative side under the Gujarat Sales Tax Act, 1969 had the

1 authority/competence to issue the 2001 Circular? The matter was argued before us

at length. In the course of the arguments, we were taken through the judgments of

this Court in the case of Coastal Chemicals Ltd. Vs. Commercial Tax Officer, A.P. &

Ors., reported in 1999 (8) SCC 465, on one hand and, on the other hand, numerous

judgments of the Gujarat High Court following the judgment of this Court in

J.K.Cotton Spinning & Weaving Mills Co. Ltd. Vs. Sales Tax Officer, reported in AIR

1965 SC 1350, and Collector of Central Excise Vs. Ballarpur Industires Ltd., reported

in 77 STC 282 (SC). It appears that the Gujarat High Court has followed the

decision in J.K. Cotton and Ballarpur (supra) in numerous cases, including the case of

Saurashtra Calcine Bauxite & Allied Industries Vs. State of Gujarat (91 STC 435).

There is a dichotomy in the controversy canvassed by the parties before us. On one

hand, the State of Gujarat's argument is basically confined to the question that the

Commissioner had no authority to issue the 2001 Circular and, consequently, by the

impugned 2005 Circular the earlier Circular came to be superseded. As against that,

what was argued on behalf of the assessees was that the Gujarat Sales Tax Act, 1969

was not similar to the A.P. General Sales Tax Act, 1957. According to the assessees,

the scheme of the two Acts was quite different and distinct. According to the

assessees, the principle laid down in the judgment of this Court in the cases of

J.K.Cotton and Ballarpur Industries (supra) followed by the Gujarat High Court in

the case of Saurashtra Calcine (supra) is one line of decisions, which, according to the

assessees, is based on the interpretation of Gujarat Law whereas the judgment of this

Court in Coastal Chemicals (supra) was confined to the interpretation of the A.P.

Law. On the other hand, it is the case of the State of Gujarat that the impugned 2005

2 Circular came to be issued because the controversy in hand stood decided by the test

laid down by this Court in the case of Coastal Chemicals (supra).

In our view, one of the important tests applied by this Court in J.K.Cotton

and Ballarpur Industries is the "test of essentiality" or the "test of dependency" in

deciding the question as to whether the expression 'raw materials' or 'processing

materials' or 'consumable sources' would cover various fuels like naphtha, liquid

diesel oil, natural gas etc.

We may reiterate for the sake of clarity that in this case, the fuels

consumed are natural gas, furnace oil, diesel oil and naphtha. Broadly, these fuels

are used by the industry for carrying on its manufacturing process. In most cases,

these fuels are used to generate electricity which is then used in the manufacture of

end products like caustic soda, industrial chemicals etc.

The point which arises for consideration is whether the above-mentioned

fuels would come within the meaning of the expression 'raw materials' 'processing

materials' or 'consumable sources'. For that purpose, it is the case of the assessees

that the tests laid down in Ballarpur Industries and in J.K. Cotton should be applied to

the Gujarat Law which is different and distinct from the A.P. Law whereas,

according to the Department, after the judgment of this Court in Coastal Chemicals,

the tests laid down therein would prevail over the tests laid down in Ballarpur

Industries and J.K. Cotton. Therefore, in short, we want the Gujarat High Court to

decide as to which line of cases it should apply while deciding the question mentioned

hereinabove.

Questions to be answered by the High Court on remand

3 "(1) Whether the Fuels consumed, namely, natural gas, furnace

oil, light diesel oil, naphtha etc., by the industry to generate electricity

which is then used in the manufacture of end products, namely, caustic

soda, industrial chemicals etc, can be considered to be 'raw material'

or 'processing material' or 'consumable source' for the purposes of

Section 15B of the Gujarat Sales Tax Act, 1969 or for the purposes of

Rule 42A or for the purposes of exemption notification issued from

time to time under the Act?

(2) Whether the tests laid down by this Court in the case of Coastal

Chemicals would apply for deciding the above question or whether the

tests laid down by this Court in the case of J.K. Cotton and in the case

of Ballarpur Industries would apply? In other words, which line of

decisions would apply, while deciding the above question, to the

Gujarat Law."

It may be noted that according to the appellant-State of Gujarat, the

controversy is covered by the judgment of this Court in the case of Coastal Chemicals

(supra) whereas, according to the assessees, it is not so because the two laws, namely,

the Gujarat Law and the A.P. Law stand on different footing. This controversy needs

to be answered by the High Court, on remand, in accordance with law.

Clarification

We may make it clear that the High Court will decide the above questions

on merits without reference to the Circulars dated 19th February, 2001 or the

4 Circular dated 2nd September, 2005 and uninfluenced by the observations in the

impugned judgment. The question whether the 2001 Circular gives rise to accrued

rights in favour of the assessees or whether the Revenue is estopped from impuging

the legality of 2005 Circular will not be the subject matter of the remand or any

proceedings thereafter.

Directions regarding pending and disposed of proceedings

It is pointed out to us that by the impugned judgment, the Gujarat High

Court has set aside cases of reopening of assessments by the Department on the basis

of 2005 Circular. That position will not be disturbed and shall continue to remain.

However, in certain cases, the Department has adopted reassessment proceedings

which are pending even today before the Assessing Officer/Appellate Authority on

the basis of 2005 Circular. Those proceedings shall continue to remain pending till

the Gujarat High Court gives its answers to the questions framed hereinabove.

However, no demands for sales tax will be raised on the assessees in respect of

purchase of fuels during the period for which assessments have been completed on

the basis of requisite Forms furnished by the assessees under the exemption

Notification and where no issue in that regard is pending before the Assessing

Officer/Appellate Authority. We may add that regarding pending cases of

assessments/appeals, no recovery shall be made for a period of six weeks after the

judgment of the Gujarat High Court answering the above questions. In other words,

the pending proceedings shall remain stayed till the High Court decides the above

questions.

5 In the event of the High Court ultimately answering the questions in favour

of the Department and against the assessees, which exercise may result in the

assessees' becoming liable to pay the tax, the same shall be recovered without

imposing any penalty. However, in such an eventuality, as far as the interest is

concerned, the same shall be recoverable in accordance with law.

This order will only apply to the respondent-assessees before this Court in

the special leave petitions.

Accordingly, the impugned judgment is set aside. Matters are remitted

back to the High Court. The above-mentioned Special Civil Applications shall stand

restored to the file of the High Court which shall be decided by the High Court in

accordance with the directions given hereinabove.

Civil Appeals are disposed of with no order as to costs.

...................J. (S.H. KAPADIA)

...................J. (H.L. DATTU) New Delhi, February 04, 2009.

6 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 679-714 OF 2009 (Arising out of S.L.P.(C) Nos.5410-5445/2008)

State of Gujarat & Anr. ...Appellant(s)

Versus

AMI Pigments Pvt. Ltd. & Ors. Etc. ...Respondent(s)

ORDER

In continuation of our order dated 4th February, 2009, we request the High

Court to expeditiously hear and dispose of the matters, preferably within six months

from today.

In the said order dated 4th February, 2009, there are typing mistakes. The

words 'consumable sources' should be read as 'consumable stores'. The word 'Rule

42A' at page 5 should be read as 'Rule 42'.

...................J. (S.H. KAPADIA)

...................J. (H.L. DATTU) New Delhi, February 12, 2009.

7