IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

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

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

Versus

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

O R D E R

Leave granted.

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

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

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

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

2007.

Introduction

Respondent-assessees  have  received the benefit  of  exemption during the

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

2001, which Circular was sought to be superseded by the impugned Circular dated

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

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

The  controversy  before  us  is  whether  the  Commissioner  on  the

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

1

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

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

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

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

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

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

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

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

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

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

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

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

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

impugned 2005 Circular the earlier Circular came to be superseded.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

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

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

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

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

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

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

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

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

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

2

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

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

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

and  Ballarpur Industries is the “test of essentiality” or the “test of dependency” in

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

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

diesel oil, natural gas etc.   

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

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

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

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

end products like caustic soda, industrial chemicals etc.   

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

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

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

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

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

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

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

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

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

hereinabove.   

Questions to be answered by the High Court on remand

3

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

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

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

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

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

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

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

time to time under the Act?

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

Chemicals would apply for deciding the above question or whether the

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

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

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

Gujarat Law.”

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

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

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

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

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

Clarification

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

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

4

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

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

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

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

proceedings thereafter.

Directions regarding pending and disposed of proceedings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

questions.

5

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

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

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

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

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

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

the special leave petitions.

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

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

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

accordance with the directions given hereinabove.

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

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

                        ...................J.

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

6

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

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

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

Versus

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

O R D E R

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

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

from today.

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

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

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

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

                       ...................J.

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

7