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CASE NO.: Appeal (civil)  177 of 2007

PETITIONER: Commercial Taxation Officer, Udaipur

RESPONDENT: M/s Rajasthan Taxchem Ltd.

DATE OF JUDGMENT: 12/01/2007

BENCH: Dr. AR. Lakshmanan & Altamas Kabir

JUDGMENT: JUDGMENT (Arising out of S.L.P. (Civil) No. 17015 of 2005)

Dr. AR.Lakshmanan, J.

Leave granted.        The above appeal filed by the Commercial Taxation Officer  Circle-B, Udaipur raises a very interesting question of law of  general public importance, as to the parameters for the test for  the determination of raw materials and in addition to whether  the use of articles or commodities not generally used in the  manufacturing process can still be categorized as raw  materials for the purpose of concession in the levy of taxes, for  consideration by this Court. In other words; "Whether diesel can be called raw material in the  manufacture of polyester yarn.         In the present case, the respondent is engaged in the  business of manufacture of polyester yarn and for the said  purpose, it purchased diesel and used it for manufacturing  electricity by D.G.-sets.  The respondent has claimed a benefit  under Section 10(1) of Rajasthan Sales Tax Act, 1994  (hereinafter referred to as ’the Act’) claiming that diesel  purchased is a raw material for the manufacture of the  ultimate final product \026 Polyester Yarn.          Under the notification issued under Section 10(1) of the  Act, purchase of raw material for manufacture of final product  is entitled to a concessional rate of tax @ 3% instead of the  normal tax of 4%.  The appellant submits that diesel is not a  raw material for the manufacture of polyester yarn and,  therefore, exigible to tax @ 4%.          The said Section 10(1) of the Act and the notification  issued thereunder are reproduced hereinbelow:

"Sec. 10- Levy of Tax on raw material and processing  articles (1)     Notwithstanding anything contained in section 4, but  subject to such restrictions and conditions as may be  prescribed, the rate of tax payable on the sale to or  purchase by a registered dealer of any raw material for  the manufacture in the State of goods for sale by him  within the state or in the course of inter-state trade or  commerce or in the course of export outside the  territory of India shall be at such concessional rate as  may be notified by the State Government."

"NOTIFICATION

In exercise of the power conferred by section.10(1), RST Act,

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1994, The State Govt. hereby notifies that the rate of tax  payable on sale to or purchase by a registered dealer of any  raw material, for the manufacture in the state of goods (other  than exempted goods), for sale by him within the state or in  the course of inter state trade or concessional rate of 3% on  the condition that the buying dealer issues a declaration  from ST 17 to the selling dealer."

It is also beneficial to reproduce the definition of raw  material which reads as under:-  "Section 2(34)- Raw Material- means Goods used as an  ingredient in the manufacture of other goods and includes  preservatives, fuel and lubricant required for the process of  manufacture."

In this case, the Officers of the Department inspected the  firm/office of the respondent and also examined the account-  books and documents of the respondent.  It was found that  the respondent has purchased diesel in the year 1997-98 by  paying 3% sales-tax whereas 4% sales-tax is leviable on  purchase of diesel (according to the Department).   The assessment for the year 1996-97 was completed by  the Assessing Authority and it was found that the respondent  had paid a lesser rate of tax on the purchase of diesel  contending that the same was a raw material used in the  manufacture of final product.  The Assessing Authority held  that since diesel was not directly used for the manufacture of  final product, the respondent was not entitled to the benefit  under the notification dated 29.09.1995 and it ought to have  paid the tax @ 4%.  The Assessing Authority, therefore, levied  a differential tax @ 1% along with interest in total amounting  to Rs.15,02,224/-. Being aggrieved with the above order, the respondent  filed an appeal before the Deputy Commissioner (Appeals)  Udaipur being Appeal No. 164/RST/1999-2000.   The Deputy  Commissioner (Appeals) dismissed the appeal of the  respondent and affirmed the order passed by the Assessing  Authority.  Being aggrieved by the above order, the respondent  filed appeal before the Rajasthan Tax Board, Ajmer which  allowed the appeal filed by the respondent and set aside both  the orders passed by the Assessing Authority and the Deputy  Commissioner (Appeals).  Being aggrieved by the order of the  Tax Board, the State filed a revision under Section 84 of the  Act before the High Court being S.B. Civil Sales-Tax Revision  No. 6 of 2005.  The High Court dismissed the revision filed by  the appellant while holding that diesel used by the respondent  was used as raw material and affirmed the order of the Tax  Board.  We heard Mr. Sushil Kumar Jain, learned counsel for the  appellant and Mr. Sanjay Jhanwar, learned counsel for the  respondent.   Mr. Sushil Kumar Jain submitted that the respondent  would be entitled for the concession under Section 10 for the  purchase of raw material which is used in the manufacture of  the final product.  However, in the present case, diesel is being  used for the manufacture of intermediate product \026 electricity  and, therefore it is not entitled for the benefit under the said  section.  It is also submitted that the later part of Section 2(34)  (raw material) which includes fuel as a raw material, is  qualified by the words "required for the process of  manufacture" and that diesel is not required for the process of  manufacture.  The respondent requires electricity for the  manufacture of its final product and, therefore, it may be  entitled to a lesser rate of tax on the purchase of electricity but

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not for the purchase of diesel which is used to manufacture  electricity.  According to the learned counsel, the respondent  is using the DG-sets as a back-up/stand by and is generally  manufacturing goods by purchasing electricity from the  electricity board in the State and that the diesel did not get  transformed in the ultimate product and it is also not used as  raw material in the manufacture of the ultimate product.  It  was further submitted that generation of electricity is not part  of the process of manufacture and diesel used in the same  cannot become raw material entitled to a lesser rate of tax. In  other words, diesel is used in the instant case in generating  electricity and hence it cannot be said to be a raw-material but  it is a processing material and levy of tax at the rate of 4%  upon the processing material is in accordance with law and  following this proposition, the Deputy Commissioner (Appeals)  has held the levy of tax @ 4% to be just and proper.  Concluding his arguments, Mr. Jain submitted that the  Rajasthan Tax Board was not justified in setting aside the  liability of tax and interest upon the respondent in the facts  and circumstances of the case. Mr. Sanjay Jhanwar, learned counsel for the respondent  submitted on merits as under: 1.      That the respondent is a manufacturer of Synthetic  Blended Yarn in the State of Rajasthan. 2.      That for the said purpose, the Respondent purchases  diesel as raw material in accordance with the provisions  of Section 10(1) of the Rajasthan Sales Tax Act, 1994 by  paying a concessional rate of tax as notified by the State  Government. 3.      The respondent purchased diesel as raw material  pursuant to the specific entry in its Registration  Certificate by making the payment of tax at concessional  rate of 3% in accordance with the provisions of section  10(1) of the Rajasthan Sales Tax Act, 1994. The appellant even on change of opinion cannot  revoke/cancel or amend the Registration Certificate with  retrospective effect on account of the principle of promissory  estoppel. It was submitted that the registration certificate  granted to the assessee is an order. Section 37 which deals  with the rectification of a mistake provides that any officer  appointed under this Act can rectify any mistake apparent  from the record either suo moto or otherwise. Any order  passed by him within a period of four years from the date of  the order can be sought to be rectified. Similarly, the  Commissioner under the provisions of section 87 of the  Rajasthan Sales Tax Act, 1994 is provided with the power to  revise any order passed by officer subordinate to him if he  considers it to be prejudicial to the interest of the revenue  within a period of five years from the date on which the order  sought to be revised was passed. Thus the power is given by  the Act to rectify or revise the registration certificate  prospectively. Learned counsel for the respondent has also placed  strong reliance on three decisions CTO vs. Hindustan  Radiator, reported in 62 STC 374, Bowen Press vs. State of  Maharashtra, reported in 39 STC 367 (Bom), Commercial  Taxes Officer vs. M/s Alcobex Metal Corporation, reported  in 1986 RTC 150 in support of his contention. In view of these  judgments, it was submitted that once the commodity is  recorded in the registration certificate as raw material then the  Department cannot roll back from their stand to the detriment  of the assessee as the assessee has not violated any condition  but acted on the belief of the Department. We have perused the Assessment Order and the order  passed by the Deputy Commissioner (Appeals), the Rajasthan

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Tax Board and the order of the High court.  In the present matter, the State has challenged the order  of the High Court by which the Court has upheld the  contention of the respondent, which entitles it to purchase  diesel at a concessional rate of tax under the provisions of  Section 10(1) of the Rajasthan Sales Tax Act. According to the  appellant the respondent has not disputed the fact that diesel  is being used by it to generate power/electricity which is in  turn used in the manufacture of final products and the  gensets used by the respondent is not the main source of  power in the industrial unit but it has an electricity  connection and the gensets are used only in the case of power  failure. Thus in view of the undisputed facts, learned counsel  for the state submitted that the claim of the respondent for a  concessional rate of tax on the purchase of diesel cannot be  sustained in law as the said concession is available only to  raw materials which is required for the process of manufacture  and therefore the claim of the respondent cannot be sustained  in respect of diesel.  Learned counsel for the state has also submitted that the  concession under the Act is only for the raw materials required  in the process of manufacture of goods and the power  generated by the use of diesel is used not only in the industrial  establishment but also in the offices within the same  compound and therefore the whole of the diesel purchased by  the respondent would not be entitled for the concession under  section 10(1).  Concluding his reply, learned counsel for the  State submitted that unless the fuel used is an essential  requirement of the manufacturing process, the same cannot  be categorized as a raw material.  We are unable to countenance the submission made by  the learned counsel for the appellant.  It is not in dispute that  the respondent is a manufacturer of synthetic blended yarn in  the State of Rajasthan and for the said purpose, respondent  purchases diesel as raw material in accordance with the  provisions of Section 10(1) of the Rajasthan Sales Tax Act,  1994 by paying a concessional rate of tax as notified by the  State Government.  We have already reproduced the question raised before  this Court by the appellant as to whether the diesel purchased  by the respondent can be termed as raw material for the  manufacture of the final products \026 yarn and fabric.  Diesel is  a raw material for the respondents which is being purchased  and utilized in the process of manufacturing by way of  generation of power through which the plant and machinery  are being operated.  It is relevant to consider that before  purchasing any goods as raw material, it is necessary for the  purchaser to apply to the Assessing Officer concerned for  issuance of registration certificate specifically mentioning such  items as raw material.  In the instant case, the respondent  accordingly approached the appellant who granted the  registration certificate after considering all the aspects of the  matter and taking a conscious decision.  It is not the case of  the appellant that at the time of grant of such registration  certificate all facts were not placed before the appellant and  that there is concealment of any material facts.  The  registration certificate so issued has been in effect during the  concerned period and has not been cancelled, revoked or  modified.  The registration certificate issued by the appellant  to the respondent has been marked as Annexure-R1.  Classified list of material to be purchased under Section  8(3) as raw material is annexed to the certificate of registration  which reads thus:-    "RAW MATERIAL POLYSTER STAPLE FIBRE

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VISCOSE STAPLE FIBRE COTTON FIBRE ACRYLIC FIBRE SYNTHETIC FIBRE & FILAMENT YARNS SPIN FINISH FUEL & LUBRICANTS DYES, CHEMICALS & COLOURS ALL TYPE OF WAX AND WAX WASHER ETC. POLYSTER, ACRYLIC AND ALL OTHER TYPES OF WASTE ACRYLIC AND POLYSTER TOW ACETATE FIBRE VISCOSE/POLYSTER FILAMENT YARN & ALL SORTS OF  MAN MADEFIBRE AND YARN SILK WOOL" We have already extracted the definition of raw material  under Section 2(34) which specifically includes fuel required  for the purpose of manufacture as raw material.  The word  includes gives a wider meaning to the words or phrases in the  Statute.  The word includes is usually used in the  interpretation clause in order to enlarge the meaning of the  words in the statute.  When the word include is used in the  words or phrases, it must be construed as comprehending not  only such things as they signify according to their nature and  impact but also those things which the interpretation clause  declares they shall include.  There is no dispute in the instant  case that the diesel and lubricant is used to generate  electricity through DG sets which is admittedly used for the  purpose of manufacturing yarn.  Thus, it is seen that as diesel  is specifically and intentionally included in the definition of  raw material by the legislature, the question that whether it is  directly or indirectly used in the process of manufacture is  irrelevant as argued by Mr. Sushil Kumar Jain. The respondent purchased the diesel as raw material  pursuant to the specific entry in its registration certificate by  making the payment of tax at concessional rate of 3% in  accordance with the provisions of Section 10(1) of the  Rajasthan Sales Tax Act, 1994.  The registration certification  granted to the assessee, in our opinion, is an order.  Section  37 which deals with the rectification of a mistake provides that  any officer appointed under this Act can rectify any mistakes  apparent from the record either suo motu or otherwise of any  order passed by him within a period of 4 years from the date of  order sought to be rectified.  Similarly, the Commissioner  under the provisions of Section 87 of the Rajasthan Sales Tax,  1994 is provided with the power to revise any order passed by  officers subordinate to him if he considers it to be prejudicial  to the interest of the revenue within a period of 5 years from  the date on which the order sought to be revised was passed.   Thus, the power is given by the act to rectify or revise the  registration certificate prospectively.   Learned counsel for the respondent cited Commercial  Taxes Officer vs. Hindustan Radiator, reported in 1962 STC  374 which was rendered by a Division Bench of the Rajasthan  High Court at Jodhpur.  In this case, the assessee was  carrying on the business of manufacture of motor radiators  and was a registered dealer under the Sales Tax Act, 1954.   The assessee purchased hydrochloric acid which has been  included in the registration certificate as raw material, by  furnishing a declaration to use it as raw material for  manufacturing of radiators and, therefore, was entitled to pay  concessional rate of tax.  The Commercial Taxes Officer took  the view that hydrochloric acid was not a raw material for  manufacture of radiators and that the dealer was not entitled  to concessional rate of tax.  The assessee’s appeal was upheld

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by the Deputy Commissioner (appeals) and penalty was  deleted.  The revision and special appeal by the commercial  tax officer before the Single Judge and the Division Bench of  the Board respectively have failed.  On reference, the High  Court held as follows:-

"(i) that under section 5C(1) for paying concessional rate of  tax on the sale or purchase price of raw material, the  following conditions were to be satisfied: (1) The purchaser  should be a registered dealer, (2) the purchase should be of  raw material, (3) the raw material should be for manufacture  of goods in the State and (4) the goods so manufactured  should be sold within the State or in the course of inter- State trade. The entry in the registration certificate issued to  the dealer-assessee showed that hydrochloric acid was  purchased as raw material for manufacture of the radiators  and unless and until it was cancelled or modified it was  binding on the department and was conclusive proof of the  fact that hydrochloric acid was raw material for manufacture  of radiators by the dealer assessee. Further, there was  nothing to show that the dealer assessee had committed any  breach of the conditions attached to the concession that was  made available to it and in this view penalty under section  5C(2) could not be imposed".

The Bench also held as under:-  

"We agree with the view taken in Bowen Press’s case (1977)  39 STC 367 (Bom) that the entry in the registration  certificate of the dealer-assessee that certain articles are raw  material for the manufacture of goods is conclusive and in  face of the entry in the registration certificate, it is not open  to the assessing authority to contend that though a  particular article has been mentioned in the registration  certificate as raw material, is not in fact a raw material  within the meaning of section 2(mm) of the Act and if nay  cancellation or modification is sought in respect of that  entry, then, it is only by following the procedure laid down  under the Act and the Rules framed thereunder that entry  can be cancelled or modified."

In Bowen Press vs. State of Maharashtra, 1939 STC  367 (Bombay), the High Court held as under:- "When an application by a registered dealer for recognition  under section 25 of the Bombay Sales Tax Act, 1959, is  made to the Sales Tax Officer, he has to determine whether  the dealer is entitled to get the certificate of recognition.  Before granting the recognition certificate in form 7, the  officer has necessarily to determine whether the goods  mentioned in the list are goods in respect of which a  recognition certificate can be granted, for which the officer  has to make such enquiry as he thinks fit. When a  recognition certificate is granted by the officer and any  particular goods are included in the list appended to the  recognition certificate, the grant of this certificate implies a  finding by the officer that the goods listed are goods in  respect of which recognition can be granted. This could be as  a result of a quasi-judicial enquiry. If it is felt that the  decision of the officer is incorrect, it could be revised by the  appropriate authority. But once the recognition certificate is  granted, it is not open to another officer assessing a dealer,  who had sold the goods to the registered dealer holding the  recognition certificate, to dispute the inclusion of any

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particular item in the recognition certificate and to come to a  conclusion that to that extent the recognition certificate was  incorrectly granted. If this were permitted, it would lead to  confusion and chaos, because different Sales Tax Officers  assessing different third parties, who had sold goods to such  a dealer holding a recognition certificate, might come to  different conclusions regarding the same item. Moreover, the  result of allowing the assessing Sales Tax Officers to do this  would be that the recognition certificate would have hardly  any binding value at all and the holder of a recognition  certificate might find it liable to be altered in effect in  proceedings in which he would not even be heard."

It is also stated that the State’s SLP against the CTO vs.  Hindustan Radiators was dismissed by this Court which was  registered as SLP (Civil) No. 1538 of 1988.   Thus, in view of these judgments, it was submitted that  once the commodity is recorded in the registration certificate  as raw material then the department cannot roll back from  their stand to the Department of the assessee as the assessee  has not violated any condition but acted on the belief of the  Department.  It was also contended that the appellant is  entitled to charge additional tax of 1% under Section 10(2)  only where the registered dealer had purchased any  commodity as raw material by paying a concessional rate of  tax for a specified purpose and the goods are not utilized by  him for the purpose specified.  In the instant case, it can be  seen that the respondent has purchased diesel as raw material  and utilized the same for the purpose specified in the  registration certificate and thus no condition is violated for  invoking the provisions of Section 10(2) of the Act.  In view of the fact that the diesel is being used for the  purpose of running the generator set for the production of the  ultimate product which is also required for the purpose of  manufacturing the end product the diesel can only be termed  as raw material and not otherwise.  The Rajasthan Tax Board  was, therefore, justified in setting aside the orders passed by  the Assessing Authority as confirmed by the Deputy  Commissioner (Appeals). To avail the concessional rate of tax under Section 10,  the assessee has to satisfy 3 conditions: a)      he must be a registered dealer of any raw material; b)      raw material must be used for the manufacture of  goods; and  c)      the said manufacture in the State should be for the  purpose of sale by him within the State or in the  course of inter-state trade or commerce or in the  course of export outside the territory of India.  

The respondent before us satisfy all the above tests and,  therefore, the assessee-respondent, in our opinion, shall be  entitled to such concessional rate as may be notified by the  State Government.  The respondent-assessee used diesel as raw material for  the manufacture of the end product, namely, yarn and fabric.   The diesel used by the assessee is a fuel and lubricant as  defined under Section 2(34) of the Sales Tax Act. In the result, we hold that the arguments advanced by  learned counsel for the appellant has no force and merit.   Accordingly, we dismiss the civil appeal filed by the State  arising out of SLP (C) No. 17015 of 2005.  However, there will  be no order as to costs.