State of Gujarat
& ANR. Vs. Ami Pigments Pvt. Ltd. & Ors. Etc.  INSC 210 (4
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) ORDER 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
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which Circular was sought to be superseded by the impugned Circular dated 2nd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.
before us is whether the Commissioner on the administrative side under the
Gujarat Sales Tax Act, 1969 had the 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 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 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 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the impugned 2005 Circular the earlier Circular came to be superseded.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 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 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
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
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
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.
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)
ORDER 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'.