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Judgment
R.Y. Ganoo, J.—These two appeals arise out of the judgment dated December 2, 2010 being common judgment in VAT Second Appeal Nos. 55 of 2010 and 56 of 2010 delivered by the Maharashtra Sales Tax Tribunal (for short, "the said Tribunal"). Both these appeals were admitted on December 8, 2011 on the following common questions of law :
(i) Whether, on the facts and in the circumstances of the case and true and correct interpretation of provision contained in rule 53 of the MVAT Rules, 2005, the Tribunal was justified in holding that the respondent-dealer is entitled to 100 per cent set-off in respect of the tax paid on the coal purchased and used in the manufacturing process both as a raw material and fuel as certified by Head of the Department of Metallurgical and Material Engineering, VNIT, Nagpur ?
(ii) Whether, on the facts and in the circumstances of the case and true and correct interpretation of the provisions contained in rule 52(1) (a) of the Maharashtra Value Added Tax Rules, 2005, the Tribunal is justified in holding that the respondent is entitled for set-off under the said rule in respect of purchases of HSD oil even though it is notified as motor spirit vide Notification dated November 30, 2006 issued u/s 41(4) of the MVAT Act, 2002 and set-off is not admissible under rule 54(b) of the MVAT Act, 2002 ?
Few facts necessary for the disposal of these two appeals are as under :
The respondent is manufacturer of sponge iron. The process of manufacturing of sponge iron involves use of raw material, i.e., iron ore, coal and dolomite. The respondent had for the assessment year April 1, 2005 to March 31, 2006 and assessment year April 1, 2006 to March 31, 2007 claimed set-off of 100 per cent in respect of the tax paid on the coal purchased and used in the manufacturing of sponge iron. The respondent before the assessing officer claimed that the said coal was used as raw material for manufacturing sponge iron from iron ore and that is how the respondent claimed 100 per cent set-off as per rule 53 of the MVAT Rules, 2005 (for short, "the said Rules"). While passing the assessment order for the aforesaid periods, the Deputy Commissioner of Sales Tax (Business Audit), Nagpur (for short, "the assessing officer") came to the conclusion that the part of coal used in the manufacture of sponge iron was used as a fuel and part as raw material. The aforesaid assessing officer permitted the respondent to claim set off to the extent of 50 per cent by treating that 50 per cent of the coal was used as a raw material and 50 per cent of the coal was used a fuel. The assessing officer passed separate orders for the respective financial years being order dated April 30, 2008. So far as the assessment year April 1, 2006 to March 31, 2007, the assessing officer did not grant set off in respect of purchase of HSD oil, which according to the respondent was used as a fuel in the manufacture of sponge iron.
Being aggrieved by the two orders as mentioned aforesaid, the respondent filed two separate appeals. So far as the assessment period April 1, 2005 to March 31, 2006, the Joint Commissioner of Sales Tax (Appeals) Nagpur, upheld the stand of the assessing officer and dismissed the appeal whereby the respondent wanted the appellate officer to accept its contention that the coal used in the manufacture of sponge iron should not be treated as fuel. So far as the assessment period April 1, 2006 to March 31, 2007, the appellate authority rejected the contention of the respondent on both the counts, i.e., (i) use of coke as a raw material and (ii) seeking setoff for HSD oil as a fuel. Consequently, the appellate authority dismissed the appeal filed by the respondent for the period April 1, 2006 to March 31, 2007. Both the orders are dated January 21, 2010.
Being aggrieved by the judgment dated January 21, 2010, respectively, the respondent filed two appeals being Second Appeal No. 55 of 2010 and Second Appeal No. 56 of 2010. The said Tribunal decided these two appeals by a common judgment dated December 2, 2010. By this judgment dated December 2, 2010 the said Tribunal allowed both the appeals and permitted the respondent to claim 100 per cent set off in respect of the tax paid on the coal purchased and used in the manufacturing process as raw material for the years April 1, 2005 to March 31, 2006 and April 1, 2006 to March 31, 2007. The finding of the assessing officer and the appellate authority granting 50 per cent of set-off was set aside.
In so far as Second Appeal No. 55 of 2010 which was also in respect of HSD oil, the said Tribunal granted set-off under rule 52(1) of the MVAT Rules out of tax paid in regard to purchase of HSD oil which was used by the respondent as fuel, as the said fuel was purchased from registered dealer by calculating it as per rule 53(1), i.e., reducing four per cent of the purchase price.
The learned advocate Mrs. Uma Palsuledesai, appearing on behalf of the appellants, i.e., State of Maharashtra submitted that the said Tribunal has erred in allowing both the appeals. In the first place she advanced submissions as regards use of coal as a fuel. In connection with this point she had taken us through a report submitted by the Head of the Department of Metallurgical and Materials Engineering, Visvesvaraya National Institute of Technology, Nagpur, being report dated February 29, 2008. Learned advocate Mrs. Palsuledesai had submitted that by the said report the author of the said report has in terms observed that the coal which is used in the manufacturing of sponge iron generates heat and it plays the role of fuel in the Rotary Kiln Process. Learned advocate Mrs. Palsuledesai had supported the orders passed by the assessing officer as well as the appellate authority and had submitted that the Tribunal erred in treating the coal used in the process of manufacturing of sponge iron as raw material. Learned advocate Mrs. Palsuledesai had submitted that since the exact quantity of coal used could not be ascertained with reference to its use as fuel, the assessing officer had arrived at the conclusion that it would be proper to give 50 per cent set-off to the respondent as regards the tax paid on the coal purchased. According to her, the said Tribunal erred in coming to the conclusion that the entire coal used could be treated as raw material.
The learned advocate Mr. Thakkar appearing on behalf of the respondent took us through the entire record, including the report furnished by the head of the Department. He submitted that the said report has been referred to by the assessing officer and therefore it was necessary for the assessing officer to appreciate the text of the report in the perspective in which it was given, namely, to show that the coal used was used as raw material. He submitted that the observation of the said officer who gave the report, viz., it indirectly plays a role of the fuel in the rotary kiln process clearly goes to show that it is not used as a fuel. He submitted that on account of the chemical qualities of the coal in the process, once the process starts, heat is generated and the iron ore is converted into sponge iron. Learned advocate Mr. Thakkar submitted that the assessing officer as well as the appellate authority failed to appreciate the chemical qualities of the coal and they appeared to be impressed by the fact that in the process of manufacture of sponge iron heat is generated and that is how they treated that the coal is used as a fuel. Learned advocate Mr. Thakkar submitted that the said Tribunal rightly came to the conclusion that the coal was used as a raw material and that the said Tribunal rightly allowed the stand taken by the respondent as regards claiming of 100 per cent set-off. He, therefore, submitted that both the appeals on the question of use of coal be dismissed and orders of the said Tribunal be confirmed.
It would be proper to deal with the arguments on both the sides on the question whether the coal used in the process by the respondent was used as a raw material or as fuel. In our view, it would be proper to reproduce the report which is contained in letter dated February 29, 2008 to which a reference has been made by all the authorities below. The text of the report is as follows :
Report :
In the Rotary Kiln Process of manufacturing sponge iron, a premixed charge of iron ore, non-coking coal and flux is added inside the kiln. This charge forms a bed inside the kiln and slowly moves towards the discharge end. During the transit of the charge, the iron ore is slowly converted into sponge iron, by the process of reduction. Inside the bed, the carbon of the non-coking coal reduces the iron oxide slowly to iron and the carbon gets converted to carbon monoxide gas. Thus, inside the bed the coal plays the role of a reductant.
The gas carbon monoxide rises out of the bed and is now post-combusted to gas carbon dioxide by carefully admitting air inside the kiln. This reaction taking place in the area above the bed is a highly exothermic reaction and produces the bulk of the heat required for the process. Thus, the non-coking coal provides the gas carbon monoxide for satisfying the heat requirements of the process, i.e., it indirectly plays the role of a fuel in the rotary kiln process.
It is impossible to quantify the ratio of coal as a reductant vs. fuel in the Rotary Kiln.
We have perused the report and we have also considered the submissions advanced by both the sides. A reading of the report clearly indicates that to convert iron ore into sponge iron the non-coking coal is used. It must be mentioned that the orders passed by the authorities did not use the specific word "non-coking coal". The report clearly indicates that the mixture of iron ore and non-coking coal when heated from outside would ultimately get converted into sponge iron. It is also noticed that on account of the chemical qualities of the non-coking coal, heat is generated. The carbon of non-coking coal reduces the iron oxide slowly to sponge iron and carbon monoxide gas is generated. The report specifically mentions that inside the bed the non-cooking coal plays the role of a reductant. It further indicates as to how highly exothermic reaction takes place and produces the bulk of the heat required for the process. It also shows that non-coking coal provides the gas carbon monoxide for satisfying the heat requirements of the process. On account of this, the author of the report has observed "It indirectly plays a role of fuel in the rotary kiln process". It is seen that chemical qualities of non-coking coal to generate heat are used. Merely because heat is generated in the process it cannot be a ground to hold that non-coking coal so used was used as fuel. The above observations clearly shows that the coal used in the process of manufacturing of sponge iron is used as a raw material and not as a fuel. It is clear that the assessing officer as well as the appellate authority misread the text of the report dated December 29, 2008. We hold that the Tribunal has rightly held that the coal used by the respondent was a raw material and not used as a fuel.
In view of the aforesaid discussion, the question at serial No. 1 in respect of both these appeals is answered in favour of the respondent-assessee.
The Sales Tax Appeal No. 13 of 2011 arises out of VAT Second Appeal No. 55 of 2010. In this appeal the question is whether the respondent was entitled to claim set-off as regards purchase of HSD oil in accordance with the provisions of rule 52(1)(a) of the said Rules. The assessing officer, namely, the Deputy Commissioner of Sales Tax (Business Audit), Nagpur, by his assessment order dated April 30, 2008 rejected the stand of the respondent as regards set-off as per section 52(1)(a) of the said Rules. The appeal carried to the Joint Commissioner of Sales Tax (Appeals) Nagpur Division, Nagpur, was dismissed by the order dated January 21, 2010. The said Tribunal had allowed the appeal filed by the respondent and granted set-off under rule 52 out of tax paid on the purchase of HSD oil, more particularly stated in order dated December 2, 2010.
The learned advocate Mrs. Palsuledesai appearing on behalf of the appellants took us through the provisions of rule 52, rule 53 and rule 54(b) of the said Rules. She had submitted that the said Tribunal erred in not appreciating the provisions of rule 54, clause (b) of the said Rules. Learned advocate Mrs. Palsuledesai had submitted that the said Tribunal ought to have noted that the set-off for purchase of motor spirits under sub-section (4) of section 41 would not be admissible unless the said motor spirit was dealt with in accordance with clause (b) of rule 54 of the said Act. Learned advocate Mrs. Palsuledesai submitted that it was necessary for the said Tribunal to consider rule 52, rule 53 and rule 54 together and the said Tribunal should have by relying upon rule 54, clause (b) confirmed the orders passed by the assessing authority as well as the appellate authority. Learned advocate Mrs. Palsuledesai had submitted that the assessing officer as well as the appellate authority had rightly appreciated the provisions of rule 54, clause (b) and had declined the contention of the respondent as regards set-off as per provisions of rule 52(1) of the said Rules.
Mrs. Palsuledesai further submitted that Second Appeal No. 55 of 2010 in regard to HSD oil should have been dismissed. She submitted that the said Tribunal erred in allowing the said Appeal No. 55 of 2010 as regards HSD oil.
The learned advocate Mr. Thakkar appearing for the respondent supported the view taken by the said Tribunal and submitted that the said appeal has been rightly allowed. Learned advocate Mr. Thakkar submitted that rule 52 grants set-off, rule 53 speaks of reduction of set-off. According to him since HSD oil was used as fuel, hence the reduced set-off was required to be granted and has rightly been granted by the said Tribunal. He, therefore, submitted that the appeal filed by the appellant as regards HSD oil should be dismissed by answering the question in favour of the respondent.
We have considered the rival submissions. We have also perused rule 52, rule 53 and rules 54 of the said Rules. In our view, rule 54(b) creates an embargo as regards claiming set-off except in the cases mentioned in rule 54(b) of the said Rules. The provisions of rule 54(b) are as follows :
Non-admissibility of set-off.--No set-off under any rule shall be admissible in respect of,--
(a) . . .
(b) purchases of motor spirits as notified under sub-section (4) of section 41 unless such motor spirits are re-sold or sold in the course of inter-State trade or commerce or in the course of export out of the territory of India or are sent, not be reason of sale, outside the State to any place within India by the claimant dealer to his own place of business, or the place of business of an agent or where the claimant dealer is a commission agent, to the place of business of his principal ;
Applying the aforesaid provisions to the facts of this case, it is clear that the use of HSD oil, i.e., motor spirit, as a fuel does not fall within the aforesaid provisions for the purpose of claiming set-off. On account of this specific provision which permits claiming of set-off under peculiar circumstances mentioned in rule 54(b) of the said Rules, the provisions of rule 52 and rule 53 cannot applied in favour of the respondent. To this extent the said Tribunal has erred. The assessing officer as well as the appellate authority has rightly declined to grant set-off to the respondent in regard to the HSD oil.
For the aforesaid reasons we are inclined to set aside the judgment and order dated December 2, 2010 delivered by the said Tribunal passed in the Second Appeal No. 55 of 2010 as regards the HSD oil. Consequently, we are inclined to answer question No. 2 framed above in favour of the appellant, i.e., State of Maharashtra and against the assessee.
Hence, following order is passed to dispose of these two appeals.
Question No. 1 framed is answered in favour of the respondent-assessee and against the Revenue.
The question No. 2 is answered in favour of the appellant, i.e., State of Maharashtra and against the assessee. In the facts and circumstances of the case, there shall he no order as to costs.