State Of Jharkhand And Ors. Etc vs Linde India Ltd And Anr Etc

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 8061-8064 OF 2022

State of Jharkhand and others …Appellants

Versus

Linde India Limited and Another …Respondents

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned common

judgment and order dated 03.08.2015 passed by the High Court of

Jharkhand at Ranchi in Writ Petition Nos. 1929 of 2015 and other allied

writ petitions, preferred by the respondents, by which the High Court has Signature Not Verified Digitally signed by

allowed the said writ petitions and has quashed and set aside the order Neetu Sachdeva Date: 2022.12.02 16:23:00 IST Reason:

dated 30.03.2015 passed by the Commercial Taxes Tribunal, Ranchi and

1 has also interfered with the concurrent findings of fact recorded by the

three authorities and has also quashed the demand notice, holding that

the respondents are entitled to benefit of concessional rate of duty at 2%

as the use of oxygen can be said to be a “raw material” for the purpose

of end product of steel, the State of Jharkhand and other authorities

have preferred the present appeals.

2. The facts leading to the present appeals in nutshell are as under:

A certificate (Form VI-B) under Section 6 of the Bihar Finance Act,

1957 was issued in the name of erstwhile India Oxygen Limited, which

was subsequently re-named as Linde India Limited. The State

Government vide notification dated 12.04.1982 under Section 13(1)(b) of

the Bihar Finance Act, 1981, notified a special rate of tax at 1% for “raw

material inputs”. However, the rate of tax for other than “raw material

inputs” continued at 3%. A certificate (Form VI-B) under Section 8 of the

Bihar Finance Act, 1981 was issued in the name of respondent No.2

herein - M/s Tata Iron and Steel Company (for short, ‘Tata Steel’). As per

Annexure-B of the certificate, “oxygen gas” was to be taxed at 3%, which

respondent No.2 herein – Tata Steel continued to pay at 3%.

2.1 The State Government issued a fresh notification dated 9.9.1983

directing that the rate of tax payable under section 13(1)(b) on raw

2 materials for use in the manufacture or processing of goods for sale in

the State or in course of Inter-State trade or commerce excluding such

raw materials which have already undergone any manufacturing or

production process and which are required for further assembly, shall be

at the rate of 2%. Vide notification dated 3.2.1986, the State

Government deleted the term “or in the course of interstate trade or

commerce”.

2.2 Respondent No.1 herein, who is a manufacturer of pure oxygen

sold the oxygen to respondent No.2 – Tata Steel. Respondent No.1

raised a dispute with respect to the rate of concessional rate of tax.

According to respondent No.1, the pure oxygen sold to respondent No.2

– Tata Steel was used as a “raw material” in production of steel through

basic oxygen steelmaking (BOS method). The Assessing Authority

disputed the sale of oxygen by respondent No.1 in favour of respondent

No.2 at 2% on the ground that such sale is not of “raw material” but of

goods other than raw materials and as such the concessional rate of tax

applicable to such sale under Section 13(1)(b) would be 3%, rather than

2%.

2.3 In a writ petition preferred by respondent No.1, the High Court of

Jharkhand dismissed Writ Petition No. 4963/2005 by holding that

3 respondent No.1 has no locus to file the writ petition as the tax was

payable by respondent No.2 – Tata Steel, who is the purchaser of

oxygen produced by respondent No.1. The judgment and order passed

by the High Court was the subject matter of Civil Appeal Nos. 1538/2009

and 1540/2009 before this Court. The said appeals came to be allowed

by this Court vide reported judgment and order in the case of BOC India

Limited v. State of Jharkhand and Others, (2009) 15 SCC 590. This

Court remanded the matter to hold an enquiry and consider, whether the

oxygen sold by respondent No.1 to respondent No.2 can be said to be

“raw material” for the manufacture of steel. The matter came to be

remanded to the assessing authority. That thereafter, a six member

committee was constituted to enquire into whether the pure oxygen sold

can be said to be “raw material”. A detailed inspection report pertaining

to inspection and inquiry of Tata Steel, by a six member committee, was

submitted and it was found that ‘oxygen gas’ is not a direct “raw

material” of steel production and the work of oxygen is only of a refining

agent. It was opined that the main function of the oxygen is to reduce

the carbon content as per requirement and as such oxygen gas is not a

direct “raw material” of steel. The report also stated that the use of

oxygen to reduce quantity of carbon from iron cannot be a ground to say

that oxygen is a “raw material” of steel. Based on the inspection report

dated 4.2.2010, the assessing officer issued notice to respondent No.1

4 dated 11.6.2010 seeking clarification as to why oxygen may not be

considered to be a ‘refining agent’. The assessing officer passed an

order of assessment dated 1.10.2011 relating to financial years 2001-02,

2002-03, 2003-04, 2004-05 and 2005-06 holding that the oxygen is used

as goods other than “raw material” in steel making and that it is a

‘refining agent’, ‘reducing agent’ and that 3% tax is to be levied on

oxygen. On the basis of the order of assessment, the Deputy

Commissioner, Commercial Taxes, Jamshedpur Circle issued a demand

notice dated 10.10.2011against respondent No.1 – Linde India Limited.

2.4 Tata Steel assailed the assessment order by way of writ petition

before the High Court. The High Court relegated the Tata Steel to file an

appeal under Section 45 of the Bihar Finance Act, 1981. That thereafter,

respondent No.1 – Linde India Limited filed an appeal under Section 45

of the Bihar Finance Act, 1981 before the Joint Commissioner,

Commercial Taxes (Appeals). The Joint Commissioner dismissed the

said appeal vide order dated 7.6.2013. Revision application came to be

dismissed against the order passed by the first appellate authority, by

order dated 30.03.2015. The order passed by the revisional authority

was the subject matter of present writ petition before the High Court. By

the impugned common judgment and order, the High Court has allowed

the said writ petition and set aside the orders passed by all the

5 authorities below, holding that as the function of the oxygen is to convert

pig iron into steel by reducing the percentage of carbon dioxide by

converting it to carbon monoxide which is necessary for the purpose of

manufacture of the end product – steel and therefore the oxygen can be

said to be a “raw material” and therefore respondent No.1 is entitled to

concessional rate of tax at 2%. The impugned common judgment and

order passed by the High Court is the subject matter of present appeals.

3. Shri Arunabh Chowdhury, learned Senior Advocate appearing on

behalf of the appellants – State of Jharkhand has vehemently submitted

that in the facts and circumstances of the case, the High Court has

seriously erred in interfering with the concurrent findings recorded by all

the three authorities below, while exercising the powers under Article 226

of the Constitution of India.

3.1 It is submitted that the findings recorded by all the authorities

below that oxygen can be said to be a ‘refining agent’ and its main role

is to reduce carbon content up to the desired level and therefore the

oxygen does not fall in the category of other goods used in the

manufacturing process of steel and considering the detailed inspection

report given by a six member committee, the findings recorded by all the

authorities below were not required to be interfered with by the High

6 Court in exercise of powers under Article 226 of the Constitution of India.

Reliance is placed on the decision of this Court in the case of State

Bank of India v. K.S. Vishwanath, 2022 SCC OnLine SC 667.

3.2 It is submitted that even otherwise on merits also, the oxygen sold

by respondent No.1 to respondent No.2 – Tata Steel cannot be said to

be “raw material” for the purpose of manufacture of steel. It is

vehemently submitted that the oxygen used can be said to be a part of

manufacturing process at the most while in any case it cannot be said to

be a “raw material” for the purpose of manufacture of the end product –

steel.

3.3 It is submitted that as observed and held by this Court in the case

of Deputy Commissioner of Sales Tax (Law), Board of Revenue

(Taxes), Ernakulam v. M/s Thomas Stephen & Co. Ltd., (1988) 2 SCC

264, goods used for ancillary purposes like fuel in the process of the

manufacture cannot be said to be “raw material” for manufacture of

goods.

3.4 It is submitted that in the present case, the fact-finding committee

consisting of experts submitted a detailed inspection report and it was

specifically found that the oxygen gas is not a direct “raw material” of

steel production and the work of oxygen is only a refining agent and its

7 main function is to reduce carbon content as per requirement and as

such, oxygen gas is not a direct “raw material” of steel. It is submitted

therefore that once that is the position, ‘oxygen gas’ cannot be said to be

a “raw material” in manufacture of the steel and therefore the rate of tax

at 3% would be leviable.

3.5 It is submitted that in fact the 3% tax was paid by the respondents

on the pure oxygen till the bifurcation of the State of Bihar into State of

Bihar and State of Jharkhand and no dispute at any point of time was

raised by the respondents. The respondents continued to pay the rate of

tax at 3%. However, a dispute was raised only when the State of

Jharkhand came into existence and they demanded the rate of tax at

3%.

3.6 Making the above submissions and relying upon the aforesaid

decisions, it is prayed to allow the present appeals and quash and set

aside the impugned common order passed by the High Court.

4. The present appeal is vehemently opposed by Shri S. Ganesh,

learned Senior Advocate appearing on behalf of the respondents – Linde

India Limited & Tata Steel.

8 4.1 Shri S. Ganesh, learned Senior Advocate appearing on behalf of

the respondents has submitted that the issue involved in the present

appeals is, as to whether the oxygen gas supplied by respondent No.1

(Linde India Limited) to respondent No.2 (Tata Steel) is used as a “raw

material” in the manufacturing process of steel, so as to entitle

respondent No.1 to pay concessional rate of tax on the same under

Section 13(1)(b) of the Bihar Finance Act, 1981 (as applicable to the

State of Jharkhand). It is submitted that if the oxygen gas is used as a

“raw material”, the same would be taxed @ 2% of sales tax, which is

otherwise chargeable @ 3% on sale thereof.

4.2 It is submitted that the oxygen supplied by Linde India Limited to

Tata Steel is directly used by Tata Steel in the manufacture of steel

making and therefore the same is “raw material” and consequently

entitled to the benefit of concessional rate of tax under Section 13(1)(b)

of the Bihar Finance Act, 1981, r/w applicable notification, adopted in the

State of Jharkhand.

4.3 It is submitted that the High Court in its impugned judgment has in

great detail noted the process of manufacture of steel by Tata Steel,

which is called Basic Oxygen Steel Method (BOS method). It is

submitted that the High Court has noted the two stages of operation, the

9 first being operation in blast furnace and second being operation in L D

vessel. It is submitted that the High Court has described them as

chemical reaction no.1 and chemical reaction no. 2. The High Court has

also noted the use of the oxygen in both the stages in both the

operations. It is submitted that thereafter the High Court has come to

the conclusion that use of the oxygen in steel making is as “raw material”

and “raw material” is not anti-thesis to it being a “refining agent.” That

the High Court has rightly observed that it is a wrong notion in the mind

of the authorities below that a ’refining agent’ cannot be a “raw material.”

It is submitted that the High Court has rightly held that ‘refining agent’

can also be a “raw material”, if it is indispensable, non-replaceable, used

in large quantity, which is inevitable to be used.

4.4 It is submitted that the High Court, while holding so, has relied

upon the principle laid down by this Court in the case of Collector of

Central Excise, New Delhi v. Ballarpur Industries Limited, (1989) 4

SCC 566. It is submitted that in the case of Ballarpur Industries

Limited (supra), the issue was, as to whether input of sodium sulphate

used in the manufacture of paper would cease to be a raw material by

reason alone of the fact that in the course of chemical reactions the

ingredient is consumed and burnt up. In the said case, this Court laid

down the test in paragraphs 13 & 14 about what constitute raw material

10 in the absence of a definition in the statute and held that the same would

be as per common parlance of the people who deal with the matter. It is

submitted that in the aforesaid decision, it is further observed and held

that the stage of manufacture is not decisive about the use of “raw

material.”

4.5 It is further submitted that as such the State of Jharkhand has

admitted before the High Court that oxygen is used in the manufacture

process of steel. However, it is case of the State that the oxygen is used

as a ‘refining agent’ and not as a “raw material.” It is submitted that the

same has been rightly rejected by the High Court, by the impugned

judgment and order.

4.6 It is submitted that the manufacturing process for making steel

adopted by Tata Steel is known as BOS method. It is submitted that the

method by which the steel is made is the Basic Oxygen Steel Method,

obviously enough, steel cannot be made without oxygen. If that is so, it

is but obvious that the oxygen is “raw material” used in this method for

manufacturing steel. It is submitted that in other words, but for oxygen,

the steel cannot be manufactured.

4.7 Now so far as the submission on behalf of the State that the

assessee is not entitled to the benefit of exemption notification dated

11 3.2.1986 bearing SO No. 154 is concerned, it is submitted that such a

contention was never raised earlier by the State and such a contention is

being raised for the first time before this Court and therefore such a

contention ought not to be allowed to be raised for the first time before

this Court.

4.8 It is submitted that even if such a contention is to be considered,

the same is stated to be rejected in view of the fact that the notification in

question only excludes such raw materials which have already

undergone any manufacturing or production process and which are

required for further assembly. It is submitted that the condition of

exclusion clause in the notification is cumulative in nature and unless the

excluded raw material, which is manufactured or processed is used for

assembly, the exclusion clause will not be triggered. It is submitted that

in the present case, Linde India Limited has manufactured/produced

pure oxygen but the same is not used for any assembly by Tata Steel.

The use of oxygen is well documented on record and well described and

considered in the impugned judgment. It is submitted that therefore the

question of use of oxygen in any assembly, whatsoever, nature does not

arise. It is submitted that therefore the contention of the State qua

notification dated 3.2.1986 is untenable.

12 4.9 Now so far as the contention of the State regarding declaration in

Annexure B by Tata Steel is concerned, it is submitted that the said

contention was earlier raised by the State in the first round of litigation

between the parties, which culminated in the judgment of this court in the

case of BOC India Limited (supra). It is submitted that in the said

judgment, this Court had specifically overruled such an objection of the

State which was based upon an inadvertent incorrect declaration. It is

submitted that this Court noticed that there is no prohibition or estoppel

in this regard and the matter is required to be considered independent of

the same.

4.10 Shri S. Ganesh, learned Senior Advocate appearing on behalf of

the respondents has submitted that the contention raised by the State

that the oxygen is used as a ‘refining agent’ and not as a “raw material”

may not be accepted for the following reasons,

i) refining agents and raw materials are not mutually exclusive or

opposite to each other. A particular product can be raw material, even

if it is also a refining agent;

ii) in order to find out whether a particular product is raw material, the

test is the indispensability of the said product in the manufacturing

process. If the end product cannot be manufactured without the use

13 of a particular product, the same would definitely constitute a raw

material;

iii) the importance of the product used as a raw material is to be seen.

The importance of the product lies in the fact not in its absence in the

end product but its presence at the delivery end of the process;

iv) the quantity of the raw material used is also significant inasmuch

as for manufacturing 1000kg of steel, 70kg of oxygen is required. This

by no means is insignificant quantity;

v) irreplaceability of the raw material is to be considered. In the

present case, as rightly noted by the High Court in its impugned

judgment, the use of the oxygen gas cannot be replaced by any other

element from the periodic table of elements;

vi) the use of raw material is to be noticed. The function of the

oxygen in the present case is to reduce the percentage of carbon, so

as to make steel from pig iron. Higher the percentage of carbon in pig

iron, the farther it is from steel. The reduction of percentage of carbon

from the pig iron converts pig iron into steel;

vii) the function of the raw material itself. In the present case, the raw

material is not only changing pig iron into steel, it itself is getting

converted into carbon dioxide and carbon monoxide. Does the

14 function of oxygen is not merely to act as catalyst but it itself is

participating in the chemical reaction in the manufacturing process;

and

viii) the application of the raw material. In the present case, the

oxygen is injected with high pressure so that the oxygen gas

penetrates the semi liquid material, i.e., pig iron, out of which steel is

manufactured.

It is submitted that therefore the use of the oxygen in the present

case is “raw material” and the respondents are entitled to the

concessional rate of tax at 2% on purchase of oxygen by Tata Steel from

Linde India Limited as the same is being used as “raw material”.

4.11 Now so far as the reliance placed upon the decision of this Court in

the case of Thomas Stephen & Co. Ltd. (supra), relied upon by the

learned counsel on behalf of the State is concerned, it is submitted that

the said judgment does not advance the case of the State in any

manner. The said judgment had already been considered and

distinguished by this Court in the case of Ballarpur Industries Limited

(supra).

4.12 Making the above submissions and relying upon the decision of

this Court in the case of Ballarpur Industries Limited (supra), it is

15 prayed to dismiss the present appeals.

5. We have heard learned counsel for the respective parties at

length.

The short question which is posed for the consideration of this

Court is, as to whether the oxygen gas supplied by respondent No.1 to

respondent No.2 is used as “raw material” in the manufacturing process

of steel, so as to entitle respondent No.1 to pay concessional rate of tax

on the same under Section 13(1)(b) of the Bihar Finance Act, 1981. This

may be noted that only in a case where oxygen gas is used as “raw

material”, the same would be taxed at the rate of 2% of the sales tax,

which otherwise is chargeable @ 3% on the sale thereof.

5.1 One another question which may fell for consideration would be,

whether in the facts and circumstances of the case and faced with a

detailed inspection report pertaining to inspection and enquiry of

respondent No.2 by a six members expert committee, upon which

reliance was placed by the assessing officer holding that oxygen gas is a

‘refining agent’, confirmed up to the revisional authority, was it open for

the High Court to upset the concurrent findings recorded by all the three

authorities below, while exercising powers under Article 226 of the

Constitution?

16

6. At the outset, it is required to be noted that pursuant to the earlier

order passed by this Court, the matter was remanded to consider the

question, as to whether oxygen gas is a “raw material” for the

manufacture of the steel. That thereafter on remand, an inspection and

enquiry was carried out by a six members expert committee who

submitted a detailed report wherein it was found that the ‘oxygen gas’ is

not a direct ‘raw material” of steel product and the work of the oxygen

gas is only of a ‘refining agent.’ As per the report, the function of the

oxygen is to reduce the carbon content as per the requirement and the

same is not a direct “raw material” of steel. By submitting a detailed

report and after considering the relevant documents/literature produced

by respondent Nos. 1 & 2, the Committee considered the detailed

process for manufacture of steel and the function of the oxygen gas

used. The Committee also considered the entire process of steel

manufacturing. That thereafter it was concluded that the oxygen gas

used is only a ‘refining agent’ and the main function of it is to reduce the

carbon content as per the requirement and therefore the oxygen gas

cannot be said to be a direct “raw material” of steel. While holding so,

the Committee analysed as under:

"In order to understand this case well, it is necessary to discuss extraction of iron from its ore and alloying first. At the outset, M/s Tata Steel Ltd. causes a hot air blast of iron ore (oxide of iron) by mixing it with lime stone and coke in its blast furnace. Iron oxide is reduced at various temperature ranges. Main objective of this blasting is removing oxygen

17 from iron ore. In this process, oxygen is removed iron ore but quantity of carbon exceeds the permissible range. The molten iron received from this furnace is called pig iron. M/s Tata Steel does not require oxygen purchased from M/s BOC till this stage. Lime stone is used in this furnace to remove Silica Impurities and coke is used to remove oxygen from iron ore.

Quantity of carbon in Molten Iron, received from this blast furnace, can stay up to 4%. More quantity of carbon, it is very hard and brittle. Other impurities (e.g., SP Si, Mg) are found mixed in molten iron. In order to refine it, M/s. Tata Steel uses pure oxygen in its L.D. converter. In the Steel Making Heading (Annexure A/4) of the documents submitted by M/s B.O.C., it is called Refining Process, and its main objective is to reduce carbon contents. The pure oxygen used in Refining process is called raw- material by M/s Tata Steel and M/s B.O.C. It is clear from the above mentioned facts that pure oxygen is not being used as raw-material in extraction of iron, and it is used in the Refining Process to increase the quality of production.

Before considering whether the used oxygen is raw material or not, it is necessary to consider the various ingredients of steel. It is to be mentioned here that Steel is nothing but Alloys of Iron & Alloying is method of improving the properties of the material by adding meal or non-metal. Various alloys of iron are as given below: -

Iron+ Carbon (.1 to 1.5%) =Steel Iron + Carbon + Chromium + Nickel = Stainless Steel = used for cycles, utensils, pens etc. Iron + Nickel + Aluminum + Co= Alnico – for permanent magnet Iron + Chromium = Chrom - used for cutting tools and crushing machine.

Iron is not used in pure form because it is soft and readily stretchable upon heating, however, if 0.1 +1.5% carbon is mixed in it, it becomes hard and strong and ready to use.

Here it is also to be noted that in this Refining Process, Slag (Sio 2 P2 O5) is formed which is unwanted waste product because of presence of oxygen in it and is not targeted product. Hence, on this ground also, oxygen cannot be held constituents of its End Product Steel. It is necessary to see the following chemical reaction to understand as to whether oxygen is raw-material of steel or not?

Electrolysis 2H2O (1) ------------- 2H2(g) + O2(g) It means, Electrolysis of water by passing current gives us “Hydrogen & Oxygen". To complete this Electrolysis process, it is necessary to mix few drops of H2SO4 (Sulfuric Acid). Thus, H2SO4 (Sulfuric Acid) cannot be held raw-material of Hydrogen or Oxygen only on this ground.

18 Similarly, use of Oxygen to reduce quantity of carbon from iron cannot be a ground to say that oxygen is raw material of steel. It is evident from the above mentioned facts that Oxygen used by M/s Tata Steel is only a Refining Agent, the main function of which is to reduce carbon contents as per the requirements, which means Oxygen is not a direct raw-material of steel. It is, of course, used in the manufacturing of steel but it does not come under the category of direct raw-material and is placed under the category of other material used in this process.”

On the basis of the aforesaid inspection report by the committee

consisting of six expert members, the assessing officer passed an

assessment order holding that the respondents are not entitled to

concessional rate of tax at the rate of 2% and that 3% tax is to be levied

on oxygen. The findings of fact recorded by the assessing officer which

were based upon a detailed inspection report by a six members expert

committee came to be confirmed by the Deputy Commissioner and

thereafter by the Joint Commissioner – Revisional Authority. The

findings of fact recorded by the three authorities below have been upset

by the High Court in exercise of powers under Article 226 of the

Constitution of India.

7. As per the settled position of law, the High Court in exercise of

powers under Article 226 of the Constitution of India is not sitting as an

appellate court against the findings recorded on appreciation of facts

and the evidence on record. The High Court ought to have appreciated

that there was a detailed inspection report by a six members committee

who after detailed enquiry and inspection and considering the process of

19 manufacture of steel specifically came to the conclusion that the work of

oxygen is only of a ‘refining agent’ and its main function is to reduce the

carbon content as per the requirement. The said findings accepted by

the assessing officer and confirmed up to the Joint Commissioner –

Revisional Authority were not required to be interfered with by the High

Court in exercise of powers under Article 226 of the Constitution. The

High Court lacks the expertise on deciding the disputed questions and

more particularly the technical aspect which could have been left to the

Committee consisting of experts.

8. Even otherwise on merits also, in light of the findings recorded by

the committee, accepted by the assessing officer and confirmed up to

the Joint Commissioner – Revisional Authority, it is required to be

considered, whether the oxygen gas used in the manufacture of

processing of goods, the same can be said to be a “raw material” for the

manufacture of the end product – steel.

9. The High Court as well as learned counsel appearing on behalf of

the respondents have heavily relied upon the decision of this Court in

the case of Ballarpur Industries Limited (supra), more particularly the

observations made in paragraphs 13 & 14. In the case before this

Court, the question was, whether the input of sodium sulphate used in

20 the manufacture of paper would cease to be a “raw material” by reason

alone of the fact that in the course of chemical reactions this ingredient is

consumed and burnt up. While analysing the entire manufacturing

process, this Court opined in paragraph 14 that the sodium sulphate

used in the manufacture of paper can be said to be a “raw material”.

While holding so, it was observed in paragraph 14 as under:

“14. The ingredients used in the chemical technology of manufacture of any end product might comprise, amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the end product; those which, as a result of interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end product; those which, like catalytic agents, while influencing and accelerating the chemical reactions, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end products and those, as here, which might be burnt up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called “raw material” for the end product. One of the valid tests, in our opinion, could be that the ingredient should be so essential from the chemical processes culminating in the emergence of the desired end product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw material. In such a case, the relevant test is not its absence in the end product, but the dependence of the end product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end product in the sense that without its absence the presence of the end product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus.”

At this stage, it is required to be noted that attention of this Court

was also drawn to the decision of this Court in the case of Thomas

Stephen & Co. Ltd. (supra) and in fact pressed into service on behalf of

21 the revenue. However, the said decision came to be distinguished by

this Court while observing in paragraph 15 as under:

“15. The decision of this Court in Dy. CST v. Thomas Stephen & Co. Ltd. [(1988) 2 SCC 264, 267 para 9 : 9:8 SCC (Tax) 190 : JT (1988) 1 SC 631, 634] relied upon by Shri Ganguly, does not really advance the appellant's case. The observations therein to the effect that “consumption must be in the manufacture of raw material or of other component which go into the making of end product” (SCC p. 267, para 9) were made to emphasise the distinction between the “fuel” used for the kiln to impart the heat treatment to ceramics and what actually went into the manufacture of such ceramics. The observations, correctly apprehended, do not lend themselves to the understanding that for something to qualify itself as a “raw material” it must necessarily and in all cases go into, and be found, in the end product.”

As such, the decision of this Court in the case of Thomas

Stephen & Co. Ltd. (supra) has not been overruled by this Court in the

case of Ballarpur Industries Ltd. (supra) and therefore the decision of

this Court in the case of Thomas Stephen & Co. Ltd. (supra) still is a

good law. In the case of Thomas Stephen & Co. Ltd. (supra), it was a

case of fuel like in the present case which was used for the kiln to

impart the heat treatment to ceramics and what actually went into the

manufacture of such ceramics.

In the case of Thomas Stephen & Co. Ltd. (supra), the cashew

shells had been used as fuel in the kiln. It was found that cashew shells

did not get transformed into the end product. The same was not used

as raw material in the manufacture of the goods and it was found that

these have been used only as an aid in the manufacture of the goods

22 by the assessee. To that it was observed that consumption must be in

the manufacture as raw material or of other components which go into

the making of the end product. It was found that cashew shells do not

tend to the making of the end product. It was observed that goods used

for ancillary purposes like fuel in the process of the manufacture do not

fall within Section 5-A(1)(a) of the Kerala General Sales Tax Act, 1963

and cannot be said to be used as a “raw material”.

10. Applying the law laid down by this Court in the case of Thomas

Stephen & Co. Ltd. (supra) to the facts of the case on hand and the

findings by the committee consisting of six expert members recorded in

the detailed inspection report and when it has been found that the

oxygen gas is used as a ‘refining agent’ and its main function is to

reduce the carbon content as per the requirement, the oxygen gas

cannot be said to be a “raw material” used in the manufacture of the

end product – steel. Under the circumstances, the respondents are not

entitled to the concessional rate of tax @ 2% treating the same as “raw

material” in the manufacture of the end product and are liable to pay tax

@ 3% on the sale thereof. The High Court has seriously erred in

holding contrary and by interfering with the concurrent findings recorded

by all the three authorities below. The impugned judgment and order

passed by the High Court is unsustainable.

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11. At this stage it is to be noted that prior to the bifurcation of the

State of Bihar, tax was being paid at 3%. No dispute was raised at that

time.

12. In view of the above and for the reasons stated above, the

present appeals succeed. The impugned judgment and order passed

by the High Court is hereby quashed and set aside and the assessment

order passed by the assessing officer, confirmed up to the revisional

authority – Joint Commissioner is hereby restored. The present

appeals are accordingly allowed. However, there shall be no order as

to costs.

………………………………..J. [M.R. SHAH]

NEW DELHI; ………………………………...J. DECEMBER 02, 2022. [M.M. SUNDRESH]

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