STATE OF JHARKHAND AND OTHERS versus LINDE INDIA LIMITED AND ANOTHER on 2 December 2022

858

SUPREME COURT REPORTS

[2022] 17 S.C.R.

ASTATE OF JHARKHAND AND OTHERS

v.

LINDE INDIA LIMITED AND ANOTHER

(Civil Appeal Nos. 8061-8064 of 2022)

BDECEMBER 02, 2022

[M. R. SHAH AND M. M. SUNDRESH, JJ.]

Bihar Finance Act, 1981: s.13(1)(b) – Benefit of concessionalrate of tax under – Entitlement to – Oxygen gas sold by respondentNo.1-manufacturer to the respondent No.2, if can be said to beCused as “raw material” in the manufacturing process of steel andwould be taxed at the rate of 2% of the sales tax, which otherwise ischargeable @ 3% on the sale thereof – Tribunal and the authoritiesbelow held that the oxygen is used as goods other than “rawmaterial” in steel making and that it is a ‘refining agent’, ‘reducingDagent’ and that 3% tax is to be levied on oxygen –However, theHigh Court held that the oxygen can be said to be a “raw material”and thus, respondent No. 1 entitled to concessional rate of tax at2% - On appeal, held: High Court ought to have appreciated thefindings by the committee consisting of expert members recorded inthe inspection report which was confirmed by the authorities belowEthat the oxygen gas is used as a ‘refining agent’ and its main functionis to reduce the carbon content as per the requirement, the oxygengas cannot be said to be a “raw material” used in the manufactureof the end product-steel – High Court lacks the expertise on decidingthe disputed questions and more particularly the technical aspectFwhich could have been left to the Committee consisting of experts –High Court in exercise of powers u/Art. 226 is not sitting as anappellate court against the findings recorded on appreciation offacts and the evidence on record – High Court has seriously erredin holding contrary and by interfering with the concurrent findingsrecorded by all the three authorities below – Thus, respondents notGentitled to the concessional rate of tax @ 2% treating the same as“raw material” in the manufacture of the end product and are liableto pay tax @ 3% on the sale thereof – Impugned judgment andorder passed by the High Court is unsustainable and set aside –Constitution of India – Art. 226.

H

Allowing the appeals, the Court

HELD: 1.1 It is required to be noted that an inspectionand enquiry was carried out by a six members expert committeewho submitted a detailed report wherein it was found that the‘oxygen gas’ is not a direct ‘raw material” of steel product andthe work of the oxygen gas is only of a ‘refining agent.’ As perthe report, the function of the oxygen is to reduce the carboncontent as per the requirement and the same is not a direct “rawmaterial” of steel. By submitting a detailed report and afterconsidering the relevant documents/literature produced byrespondent Nos. 1 & 2, the Committee considered the detailedprocess for manufacture of steel and the function of the oxygengas used. The Committee also considered the entire process ofsteel manufacturing. That thereafter it was concluded that theoxygen gas used is only a ‘refining agent’ and the main functionof it is to reduce the carbon content as per the requirement andthus, the oxygen gas cannot be said to be a direct “raw material”of steel. On the basis of the said inspection report by thecommittee consisting of six expert members, the assessing officerpassed an assessment order holding that the respondents arenot entitled to concessional rate of tax at the rate of 2% and that3% tax is to be levied on oxygen. The findings of fact recordedby the assessing officer which were based upon a detailedinspection report by a six members expert committee came tobe confirmed by the Deputy Commissioner and thereafter by theJoint Commissioner-Revisional Authority. The findings of factrecorded by the three authorities below have been upset by theHigh Court in exercise of powers under Article 226 of theConstitution of India. [Para 6][870-A-D; 872-C-E]

1.2 The High Court in exercise of powers under Article226 of the Constitution of India is not sitting as an appellate courtagainst the findings recorded on appreciation of facts and theevidence on record. The High Court ought to have appreciatedthat there was a detailed inspection report by a six memberscommittee who after detailed enquiry and inspection andconsidering the process of manufacture of steel specifically cameto the conclusion that the work of oxygen is only of a ‘refining A

B

C

D

E

FG

H

Aagent’ and its main function is to reduce the carbon content asper the requirement. The said findings accepted by the assessingofficer and confirmed up to the Joint Commissioner-RevisionalAuthority were not required to be interfered with by the HighCourt in exercise of powers under Article 226 of the Constitution.The High Court lacks the expertise on deciding the disputedBquestions and more particularly the technical aspect which couldhave been left to the Committee consisting of experts. [Para7][872-E-G]

1.3 Even otherwise on merits also, in light of the findingsrecorded by the committee, accepted by the assessing officerCand confirmed up to the Joint Commissioner-Revisional Authority,it is required to be considered, whether the oxygen gas used inthe manufacture of processing of goods, the same can be said tobe a “raw material” for the manufacture of the end product-steel.[Para 8][872-H; 873-A]

D

1.4 Applying the law laid down by this Court in the case ofThomas Stephen & Co. Ltd.’s case to the facts of the case on handand the findings by the committee consisting of six expertmembers recorded in the detailed inspection report and when ithas been found that the oxygen gas is used as a ‘refining agent’Eand its main function is to reduce the carbon content as per therequirement, the oxygen gas cannot be said to be a “raw material”used in the manufacture of the end product – steel. Under thecircumstances, the respondents are not entitled to theconcessional rate of tax @ 2% treating the same as “rawmaterial” in the manufacture of the end product and are liable toFpay tax @ 3% on the sale thereof. The High Court has seriouslyerred in holding contrary and by interfering with the concurrentfindings recorded by all the three authorities below. The impugnedjudgment and order passed by the High Court is unsustainable.Furthermore, prior to the bifurcation of the State of Bihar, taxGwas being paid at 3%. No dispute was raised at that time. Theimpugned judgment and order passed by the High Court isquashed and set aside and the assessment order passed by theassessing officer, confirmed up to the revisional authority-JointCommissioner is restored. [Paras 10-12][875-B-F]

H

STATE OF JHARKHAND AND OTHERS v. LINDE INDIALIMITED AND ANOTHER

Deputy Commissioner of Sales Tax (Law), Board ofRevenue (Taxes), Ernakulam v. M/s Thomas Stephen &Co. Ltd. (1988) 2 SCC 264 : [1988] 3 SCR 248 – reliedon.

BOC India Limited v. State of Jharkhand and Others(2009) 15 SCC 590 : [2009] 4 SCR 253; State Bank ofIndia v. K.S. Vishwanath 2022 SCC OnLine SC 667;Collector of Central Excise, New Delhi v. BallarpurIndustries Limited (1989) 4 SCC 566 : [1989] 1 Suppl.SCR 323 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8061-8064 of 2022.

From the Judgment and Order dated 03.08.2015 of the High Courtof Jharkhand at Ranchi in Writ Petition (T) Nos. 1929, 1939, 1940 and1941 of 2015.

Arunabh Chowdhury, Sr. Adv., Shantanu Sagar, Abhishek Roy,Karma Dorjee, Dechen W. Lachungpa, Aniruddma M. Sethi, SidharthSarthi, Prabhat R. Raj, Advs. for the Appellants.

S. Ganesh, Sr. Adv., Ajay Aggarwal, Rajan Narain, Advs. for theRespondents.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned commonjudgment and order dated 03.08.2015 passed by the High Court ofJharkhand at Ranchi in Writ Petition Nos. 1929 of 2015 and other alliedwrit petitions, preferred by the respondents, by which the High Courthas allowed the said writ petitions and has quashed and set aside theorder dated 30.03.2015 passed by the Commercial Taxes Tribunal, Ranchiand has also interfered with the concurrent findings of fact recorded bythe three authorities and has also quashed the demand notice, holding A

B

C

D

E

F

G

H

Athat the respondents are entitled to benefit of concessional rate of dutyat 2% as the use of oxygen can be said to be a “raw material” for thepurpose of end product of steel, the State of Jharkhand and otherauthorities have preferred the present appeals.

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

A certificate (Form VI-B) under Section 6 of the Bihar FinanceAct, 1957 was issued in the name of erstwhile India Oxygen Limited,which was subsequently re-named as Linde India Limited. The StateGovernment 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% forC“raw material inputs”. However, the rate of tax for other than “rawmaterial inputs” continued at 3%. A certificate (Form VI-B) under Section8 of the Bihar Finance Act, 1981 was issued in the name of respondentNo.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 at3%, which respondent No.2 herein – Tata Steel continued to pay at 3%.D

2.1 The State Government issued a fresh notification dated 9.9.1983directing that the rate of tax payable under section 13(1)(b) on rawmaterials for use in the manufacture or processing of goods for sale inthe State or in course of Inter-State trade or commerce excluding suchraw materials which have already undergone any manufacturing orEproduction process and which are required for further assembly, shall beat the rate of 2%. Vide notification dated 3.2.1986, the State Governmentdeleted the term “or in the course of interstate trade or commerce”.

2.2 Respondent No.1 herein, who is a manufacturer of pure oxygensold the oxygen to respondent No.2 – Tata Steel. Respondent No.1 raisedFa dispute with respect to the rate of concessional rate of tax. Accordingto respondent No.1, the pure oxygen sold to respondent No.2 – TataSteel was used as a “raw material” in production of steel through basicoxygen steelmaking (BOS method). The Assessing Authority disputedthe sale of oxygen by respondent No.1 in favour of respondent No.2 atG2% on the ground that such sale is not of “raw material” but of goodsother than raw materials and as such the concessional rate of taxapplicable to such sale under Section 13(1)(b) would be 3%, rather than2%.

2.3 In a writ petition preferred by respondent No.1, the High Courtof Jharkhand dismissed Writ Petition No. 4963/2005 by holding thatH

respondent No.1 has no locus to file the writ petition as the tax waspayable by respondent No.2 – Tata Steel, who is the purchaser of oxygenproduced by respondent No.1. The judgment and order passed by theHigh Court was the subject matter of Civil Appeal Nos. 1538/2009 and1540/2009 before this Court. The said appeals came to be allowed bythis Court vide reported judgment and order in the case of BOC IndiaLimited v. State of Jharkhand and Others, (2009) 15 SCC 590. ThisCourt remanded the matter to hold an enquiry and consider, whether theoxygen 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 beremanded to the assessing authority. That thereafter, a six membercommittee was constituted to enquire into whether the pure oxygen soldcan be said to be “raw material”. A detailed inspection report pertainingto inspection and inquiry of Tata Steel, by a six member committee, wassubmitted 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. Itwas opined that the main function of the oxygen is to reduce the carboncontent as per requirement and as such oxygen gas is not a direct “rawmaterial” of steel. The report also stated that the use of oxygen to reducequantity 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 dated 11.6.2010seeking clarification as to why oxygen may not be considered to be a‘refining agent’. The assessing officer passed an order of assessmentdated 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’, ‘reducingagent’ and that 3% tax is to be levied on oxygen. On the basis of theorder of assessment, the Deputy Commissioner, Commercial Taxes,Jamshedpur Circle issued a demand notice dated 10.10.2011againstrespondent No.1 – Linde India Limited.

2.4 Tata Steel assailed the assessment order by way of writ petitionbefore the High Court. The High Court relegated the Tata Steel to filean appeal under Section 45 of the Bihar Finance Act, 1981. Thatthereafter, respondent No.1 – Linde India Limited filed an appeal underSection 45 of the Bihar Finance Act, 1981 before the Joint Commissioner,Commercial Taxes (Appeals). The Joint Commissioner dismissed thesaid appeal vide order dated 7.6.2013. Revision application came to bedismissed against the order passed by the first appellate authority, by A

B

C

D

E

F

G

H

Aorder dated 30.03.2015. The order passed by the revisional authoritywas the subject matter of present writ petition before the High Court.By the impugned common judgment and order, the High Court hasallowed the said writ petition and set aside the orders passed by all theauthorities below, holding that as the function of the oxygen is to convertpig iron into steel by reducing the percentage of carbon dioxide byBconverting it to carbon monoxide which is necessary for the purpose ofmanufacture of the end product – steel and therefore the oxygen can besaid to be a “raw material” and therefore respondent No.1 is entitled toconcessional rate of tax at 2%. The impugned common judgment andorder passed by the High Court is the subject matter of present appeals.C3. Shri Arunabh Chowdhury, learned Senior Advocate appearingon behalf of the appellants – State of Jharkhand has vehemently submittedthat in the facts and circumstances of the case, the High Court hasseriously erred in interfering with the concurrent findings recorded by allthe three authorities below, while exercising the powers under ArticleD226 of the Constitution of India.

3.1 It is submitted that the findings recorded by all the authoritiesbelow that oxygen can be said to be a ‘refining agent’ and its main roleis to reduce carbon content up to the desired level and therefore theoxygen does not fall in the category of other goods used in theEmanufacturing process of steel and considering the detailed inspectionreport given by a six member committee, the findings recorded by all theauthorities below were not required to be interfered with by the HighCourt in exercise of powers under Article 226 of the Constitution ofIndia. Reliance is placed on the decision of this Court in the case ofState Bank of India v. K.S. Vishwanath, 2022 SCC OnLine SC 667.F

3.2 It is submitted that even otherwise on merits also, the oxygensold by respondent No.1 to respondent No.2 – Tata Steel cannot be saidto be “raw material” for the purpose of manufacture of steel. It isvehemently submitted that the oxygen used can be said to be a part ofmanufacturing process at the most while in any case it cannot be said toGbe 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 thecase of Deputy Commissioner of Sales Tax (Law), Board of Revenue(Taxes), Ernakulam v. M/s Thomas Stephen & Co. Ltd., (1988) 2HSCC 264, goods used for ancillary purposes like fuel in the process of STATE OF JHARKHAND AND OTHERS v. LINDE INDIALIMITED AND ANOTHER [M. R. SHAH, J.]

the manufacture cannot be said to be “raw material” for manufacture ofgoods.

3.4 It is submitted that in the present case, the fact-findingcommittee consisting of experts submitted a detailed inspection reportand it was specifically found that the oxygen gas is not a direct “rawmaterial” of steel production and the work of oxygen is only a refiningagent and its main function is to reduce carbon content as per requirementand as such, oxygen gas is not a direct “raw material” of steel. It issubmitted therefore that once that is the position, ‘oxygen gas’ cannotbe said to be a “raw material” in manufacture of the steel and thereforethe rate of tax at 3% would be leviable.

3.5 It is submitted that in fact the 3% tax was paid by therespondents on the pure oxygen till the bifurcation of the State of Biharinto State of Bihar and State of Jharkhand and no dispute at any point oftime was raised by the respondents. The respondents continued to paythe rate of tax at 3%. However, a dispute was raised only when theState of Jharkhand came into existence and they demanded the rate oftax at 3%.

3.6 Making the above submissions and relying upon the aforesaiddecisions, it is prayed to allow the present appeals and quash and setaside 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 – LindeIndia Limited & Tata Steel.

4.1 Shri S. Ganesh, learned Senior Advocate appearing on behalfof the respondents has submitted that the issue involved in the presentappeals 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 “rawmaterial” in the manufacturing process of steel, so as to entitle respondentNo.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”, thesame 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 Limitedto Tata Steel is directly used by Tata Steel in the manufacture of steelmaking and therefore the same is “raw material” and consequently AB

C

D

E

F

G

H

Aentitled to the benefit of concessional rate of tax under Section 13(1)(b)of the Bihar Finance Act, 1981, r/w applicable notification, adopted inthe State of Jharkhand.

4.3 It is submitted that the High Court in its impugned judgmenthas in great detail noted the process of manufacture of steel by TataBSteel, which is called Basic Oxygen Steel Method (BOS method). It issubmitted that the High Court has noted the two stages of operation, thefirst being operation in blast furnace and second being operation in L Dvessel. It is submitted that the High Court has described them as chemicalreaction no.1 and chemical reaction no. 2. The High Court has alsonoted the use of the oxygen in both the stages in both the operations. ItCis submitted that thereafter the High Court has come to the conclusionthat use of the oxygen in steel making is as “raw material” and “rawmaterial” is not anti-thesis to it being a “refining agent.” That the HighCourt has rightly observed that it is a wrong notion in the mind of theauthorities below that a ’refining agent’ cannot be a “raw material.” It isDsubmitted that the High Court has rightly held that ‘refining agent’ canalso be a “raw material”, if it is indispensable, non-replaceable, used inlarge quantity, which is inevitable to be used.

4.4 It is submitted that the High Court, while holding so, has reliedupon the principle laid down by this Court in the case of Collector ofCentral Excise, New Delhi v. Ballarpur Industries Limited, (1989)E4 SCC 566. It is submitted that in the case of Ballarpur IndustriesLimited (supra), the issue was, as to whether input of sodium sulphateused in the manufacture of paper would cease to be a raw material byreason alone of the fact that in the course of chemical reactions theingredient is consumed and burnt up. In the said case, this Court laidFdown the test in paragraphs 13 & 14 about what constitute raw materialin the absence of a definition in the statute and held that the same wouldbe as per common parlance of the people who deal with the matter. It issubmitted that in the aforesaid decision, it is further observed and heldthat the stage of manufacture is not decisive about the use of “rawmaterial.”G

4.5 It is further submitted that as such the State of Jharkhand hasadmitted before the High Court that oxygen is used in the manufactureprocess of steel. However, it is case of the State that the oxygen is usedas a ‘refining agent’ and not as a “raw material.” It is submitted that thesame has been rightly rejected by the High Court, by the impugnedHjudgment and order.

4.6 It is submitted that the manufacturing process for making steeladopted by Tata Steel is known as BOS method. It is submitted that themethod 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 isbut obvious that the oxygen is “raw material” used in this method formanufacturing 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 theassessee is not entitled to the benefit of exemption notification dated3.2.1986 bearing SO No. 154 is concerned, it is submitted that such acontention was never raised earlier by the State and such a contention isbeing raised for the first time before this Court and therefore such acontention ought not to be allowed to be raised for the first time beforethis 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 notificationin question only excludes such raw materials which have alreadyundergone any manufacturing or production process and which arerequired for further assembly. It is submitted that the condition of exclusionclause in the notification is cumulative in nature and unless the excludedraw material, which is manufactured or processed is used for assembly,the exclusion clause will not be triggered. It is submitted that in thepresent case, Linde India Limited has manufactured/produced pureoxygen but the same is not used for any assembly by Tata Steel. Theuse of oxygen is well documented on record and well described andconsidered in the impugned judgment. It is submitted that therefore thequestion of use of oxygen in any assembly, whatsoever, nature does notarise. It is submitted that therefore the contention of the State quanotification dated 3.2.1986 is untenable.

4.9 Now so far as the contention of the State regarding declarationin Annexure B by Tata Steel is concerned, it is submitted that the saidcontention was earlier raised by the State in the first round of litigationbetween the parties, which culminated in the judgment of this court inthe case of BOC India Limited (supra). It is submitted that in the saidjudgment, this Court had specifically overruled such an objection of theState which was based upon an inadvertent incorrect declaration. It issubmitted that this Court noticed that there is no prohibition or estoppelin this regard and the matter is required to be considered independent ofthe same.

AB

C

DE

F

GH

A4.10 Shri S. Ganesh, learned Senior Advocate appearing on behalfof the respondents has submitted that the contention raised by the Statethat 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 exclusiveBor opposite to each other. A particular product can be rawmaterial, even if it is also a refining agent;

ii)in order to find out whether a particular product is rawmaterial, the test is the indispensability of the said productin the manufacturing process. If the end product cannot beCmanufactured without the use of a particular product, thesame would definitely constitute a raw material;

iii)the importance of the product used as a raw material is tobe seen. The importance of the product lies in the fact notin its absence in the end product but its presence at theDdelivery end of the process;

iv)the quantity of the raw material used is also significantinasmuch as for manufacturing 1000kg of steel, 70kg ofoxygen is required. This by no means is insignificant quantity; v)irreplaceability of the raw material is to be considered. InEthe present case, as rightly noted by the High Court in itsimpugned judgment, the use of the oxygen gas cannot bereplaced by any other element from the periodic table ofelements;

vi)the use of raw material is to be noticed. The function of theFoxygen in the present case is to reduce the percentage ofcarbon, so as to make steel from pig iron. Higher thepercentage of carbon in pig iron, the farther it is from steel.The reduction of percentage of carbon from the pig ironconverts pig iron into steel;

Gvii)the function of the raw material itself. In the present case,the raw material is not only changing pig iron into steel, ititself is getting converted into carbon dioxide and carbonmonoxide. Does the function of oxygen is not merely to actas catalyst but it itself is participating in the chemical reactionin the manufacturing process; and H

viii) the application of the raw material. In the present case,the oxygen is injected with high pressure so that the oxygengas penetrates the semi liquid material, i.e., pig iron, out ofwhich steel is manufactured.

It is submitted that therefore the use of the oxygen in the presentcase is “raw material” and the respondents are entitled to theconcessional rate of tax at 2% on purchase of oxygen by Tata Steelfrom 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 thisCourt in the case of Thomas Stephen & Co. Ltd. (supra), relied uponby the learned counsel on behalf of the State is concerned, it is submittedthat the said judgment does not advance the case of the State in anymanner. 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 decisionof this Court in the case of Ballarpur Industries Limited (supra), it isprayed to dismiss the present appeals.

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

The short question which is posed for the consideration of thisCourt is, as to whether the oxygen gas supplied by respondent No.1 torespondent No.2 is used as “raw material” in the manufacturing processof steel, so as to entitle respondent No.1 to pay concessional rate of taxon the same under Section 13(1)(b) of the Bihar Finance Act, 1981. Thismay be noted that only in a case where oxygen gas is used as “rawmaterial”, 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 wouldbe, whether in the facts and circumstances of the case and faced witha detailed inspection report pertaining to inspection and enquiry ofrespondent No.2 by a six members expert committee, upon whichreliance was placed by the assessing officer holding that oxygen gas isa ‘refining agent’, confirmed up to the revisional authority, was it openfor the High Court to upset the concurrent findings recorded by all thethree authorities below, while exercising powers under Article 226 ofthe Constitution?

A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

A6. At the outset, it is required to be noted that pursuant to theearlier order passed by this Court, the matter was remanded to considerthe question, as to whether oxygen gas is a “raw material” for themanufacture of the steel. That thereafter on remand, an inspection andenquiry was carried out by a six members expert committee whosubmitted a detailed report wherein it was found that the ‘oxygen gas’ isBnot a direct ‘raw material” of steel product and the work of the oxygengas is only of a ‘refining agent.’ As per the report, the function of theoxygen is to reduce the carbon content as per the requirement and thesame is not a direct “raw material” of steel. By submitting a detailedreport and after considering the relevant documents/literature producedCby respondent Nos. 1 & 2, the Committee considered the detailed processfor manufacture of steel and the function of the oxygen gas used. TheCommittee 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 contentas per the requirement and therefore the oxygen gas cannot be said toDbe a direct “raw material” of steel. While holding so, the Committeeanalysed as under:

“In order to understand this case well, it is necessary to discussextraction 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)Eby mixing it with lime stone and coke in its blast furnace. Ironoxide is reduced at various temperature ranges. Main objectiveof this blasting is removing oxygen from iron ore. In this process,oxygen is removed iron ore but quantity of carbon exceeds thepermissible range. The molten iron received from this furnace isFcalled pig iron. M/s Tata Steel does not require oxygen purchasedfrom M/s BOC till this stage. Lime stone is used in this furnace toremove Silica Impurities and coke is used to remove oxygen fromiron ore.

Quantity of carbon in Molten Iron, received from this blast furnace,Gcan stay up to 4%. More quantity of carbon, it is very hard andbrittle. Other impurities (e.g., SP Si, Mg) are found mixed in molteniron. In order to refine it, M/s. Tata Steel uses pure oxygen in itsL.D. converter. In the Steel Making Heading (Annexure A/4) ofthe documents submitted by M/s B.O.C., it is called RefiningProcess, and its main objective is to reduce carbon contents. TheH

pure oxygen used in Refining process is called raw-material byM/s Tata Steel and M/s B.O.C. It is clear from the abovementioned facts that pure oxygen is not being used as raw-materialin extraction of iron, and it is used in the Refining Process toincrease the quality of production.

Before considering whether the used oxygen is raw material ornot, it is necessary to consider the various ingredients of steel. Itis to be mentioned here that Steel is nothing but Alloys of Iron &Alloying is method of improving the properties of the materialby adding meal or non-metal. Various alloys of iron are as givenbelow: - Iron + Carbon (.1 to 1.5%) =Steel Iron + Carbon + Chromium + Nickel = Stainless Steel = usedfor cycles, utensils, pens etc.

Iron + Nickel + Aluminum + Co= Alnico – for permanent magnet Iron + Chromium = Chrom - used for cutting tools and crushingmachine.

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

Here it is also to be noted that in this Refining Process, Slag (Sio2P2 O5) is formed which is unwanted waste product because ofpresence of oxygen in it and is not targeted product. Hence, onthis ground also, oxygen cannot be held constituents of its EndProduct Steel.

It is necessary to see the following chemical reaction to understandas 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, itis necessary to mix few drops of H2SO4 (Sulfuric Acid). Thus,H2SO4 (Sulfuric Acid) cannot be held raw-material of Hydrogenor Oxygen only on this ground.

A

B

C

D

E

F

G

H

[2022] 17 S.C.R.

ASimilarly, use of Oxygen to reduce quantity of carbon from ironcannot be a ground to say that oxygen is raw material of steel.

It is evident from the above mentioned facts that Oxygen used byM/s Tata Steel is only a Refining Agent, the main function ofwhich is to reduce carbon contents as per the requirements, whichBmeans 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 thecategory of direct raw-material and is placed under the categoryof other material used in this process.”

On the basis of the aforesaid inspection report by the committeeCconsisting of six expert members, the assessing officer passed anassessment order holding that the respondents are not entitled toconcessional rate of tax at the rate of 2% and that 3% tax is to be leviedon oxygen. The findings of fact recorded by the assessing officer whichwere based upon a detailed inspection report by a six members expertcommittee came to be confirmed by the Deputy Commissioner andDthereafter by the Joint Commissioner – Revisional Authority. The findingsof fact recorded by the three authorities below have been upset by theHigh Court in exercise of powers under Article 226 of the Constitutionof India.

7. As per the settled position of law, the High Court in exercise ofEpowers under Article 226 of the Constitution of India is not sitting as anappellate court against the findings recorded on appreciation of factsand the evidence on record. The High Court ought to have appreciatedthat there was a detailed inspection report by a six members committeewho after detailed enquiry and inspection and considering the process ofFmanufacture of steel specifically came to the conclusion that the workof oxygen is only of a ‘refining agent’ and its main function is to reducethe carbon content as per the requirement. The said findings acceptedby the assessing officer and confirmed up to the Joint Commissioner –Revisional Authority were not required to be interfered with by the HighGCourt in exercise of powers under Article 226 of the Constitution. TheHigh Court lacks the expertise on deciding the disputed questions andmore particularly the technical aspect which could have been left to theCommittee consisting of experts.

8. Even otherwise on merits also, in light of the findings recordedHby the committee, accepted by the assessing officer and confirmed up to the Joint Commissioner – Revisional Authority, it is required to beconsidered, whether the oxygen gas used in the manufacture of processingof goods, the same can be said to be a “raw material” for the manufactureof the end product – steel.

9. The High Court as well as learned counsel appearing on behalfof the respondents have heavily relied upon the decision of this Court inthe case of Ballarpur Industries Limited (supra), more particularlythe observations made in paragraphs 13 & 14. In the case before thisCourt, the question was, whether the input of sodium sulphate used inthe manufacture of paper would cease to be a “raw material” by reasonalone of the fact that in the course of chemical reactions this ingredientis consumed and burnt up. While analysing the entire manufacturingprocess, this Court opined in paragraph 14 that the sodium sulphate usedin the manufacture of paper can be said to be a “raw material”. Whileholding so, it was observed in paragraph 14 as under:

“14. The ingredients used in the chemical technology ofmanufacture of any end product might comprise, amongst others,of those which may retain their dominant individual identity andcharacter throughout the process and also in the end product;those which, as a result of interaction with other chemicals oringredients, might themselves undergo chemical or qualitativechanges and in such altered form find themselves in the endproduct; those which, like catalytic agents, while influencing andaccelerating the chemical reactions, however, may themselvesremain uninfluenced and unaltered and remain independent of andoutside the end products and those, as here, which might be burntup or consumed in the chemical reactions. The question in thepresent case is whether the ingredients of the last mentioned classqualify themselves as and are eligible to be called “raw material”for the end product. One of the valid tests, in our opinion, could bethat the ingredient should be so essential from the chemicalprocesses culminating in the emergence of the desired end product,that having regard to its importance in and indispensability for theprocess, it could be said that its very consumption on burning up isits quality and value as raw material. In such a case, the relevanttest is not its absence in the end product, but the dependence ofthe end product for its essential presence at the delivery end ofthe process. The ingredient goes into the making of the end product A

B

C

D

E

F

G

H

Ain the sense that without its absence the presence of the endproduct, as such, is rendered impossible. This quality shouldcoalesce with the requirement that its utilisation is in themanufacturing process as distinct from the manufacturingapparatus.”

BAt this stage, it is required to be noted that attention of this Courtwas also drawn to the decision of this Court in the case of ThomasStephen & Co. Ltd. (supra) and in fact pressed into service on behalfof the revenue. However, the said decision came to be distinguished bythis Court while observing in paragraph 15 as under:

C“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 notreally advance the appellant’s case. The observations therein tothe effect that “consumption must be in the manufacture of rawmaterial or of other component which go into the making of endDproduct” (SCC p. 267, para 9) were made to emphasise thedistinction between the “fuel” used for the kiln to impart the heattreatment to ceramics and what actually went into the manufactureof such ceramics. The observations, correctly apprehended, donot lend themselves to the understanding that for something toEqualify itself as a “raw material” it must necessarily and in allcases 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 ofBallarpur Industries Ltd. (supra) and therefore the decision of thisFCourt in the case of Thomas Stephen & Co. Ltd. (supra) still is a goodlaw. In the case of Thomas Stephen & Co. Ltd. (supra), it was a caseof fuel like in the present case which was used for the kiln to impart theheat treatment to ceramics and what actually went into the manufactureof such ceramics.

GIn the case of Thomas Stephen & Co. Ltd. (supra), the cashewshells had been used as fuel in the kiln. It was found that cashew shellsdid not get transformed into the end product. The same was not used asraw material in the manufacture of the goods and it was found thatthese have been used only as an aid in the manufacture of the goods bythe assessee. To that it was observed that consumption must be in theHmanufacture as raw material or of other components which go into the making of the end product. It was found that cashew shells do not tendto the making of the end product. It was observed that goods used forancillary purposes like fuel in the process of the manufacture do not fallwithin Section 5-A(1)(a) of the Kerala General Sales Tax Act, 1963 andcannot be said to be used as a “raw material”.

10. Applying the law laid down by this Court in the case of ThomasStephen & Co. Ltd. (supra) to the facts of the case on hand and thefindings by the committee consisting of six expert members recorded inthe detailed inspection report and when it has been found that the oxygengas is used as a ‘refining agent’ and its main function is to reduce thecarbon content as per the requirement, the oxygen gas cannot be said tobe a “raw material” used in the manufacture of the end product – steel.Under the circumstances, the respondents are not entitled to theconcessional rate of tax @ 2% treating the same as “raw material” inthe manufacture of the end product and are liable to pay tax @ 3% onthe sale thereof. The High Court has seriously erred in holding contraryand by interfering with the concurrent findings recorded by all the threeauthorities below. The impugned judgment and order passed by the HighCourt is unsustainable.

11. At this stage it is to be noted that prior to the bifurcation of theState of Bihar, tax was being paid at 3%. No dispute was raised at thattime.

12. In view of the above and for the reasons stated above, thepresent appeals succeed. The impugned judgment and order passed bythe High Court is hereby quashed and set aside and the assessmentorder passed by the assessing officer, confirmed up to the revisionalauthority – Joint Commissioner is hereby restored. The present appealsare accordingly allowed. However, there shall be no order as to costs.

Nidhi Jain

Appeals allowed

A

BC

D

E

F

G

H