SCA/9169/2006 1/85 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 9169 of 2006 With SPECIAL CIVIL APPLICATION No. 9170 of 2006 To SPECIAL CIVIL APPLICATION No. 9190 of 2006 With SPECIAL CIVIL APPLICATION No. 11809 of 2006 With SPECIAL CIVIL APPLICATION No. 11810 of 2006 With SPECIAL CIVIL APPLICATION No. 12032 of 2006 With SPECIAL CIVIL APPLICATION No. 12195 of 2006 With SPECIAL CIVIL APPLICATION No. 12197 of 2006 With SPECIAL CIVIL APPLICATION No. 13498 of 2006 With SPECIAL CIVIL APPLICATION No. 13554 of 2006 With SPECIAL CIVIL APPLICATION No. 12104 of 2006 With SPECIAL CIVIL APPLICATION No. 12103 of 2006 With SPECIAL CIVIL APPLICATION No. 18729 of 2006 With SPECIAL CIVIL APPLICATION No. 12033 of 2006 With SPECIAL CIVIL APPLICATION No. 12034 of 2006 With SPECIAL CIVIL APPLICATION No. 12106 of 2006 With SPECIAL CIVIL APPLICATION No. 8158 of 2007 For Approval and Signature: HONOURABLE MR. JUSTICE J. M. PANCHAL AND HON'BLE SMT. JUSTICE ABHILASHA KUMARI ============================================================= SCA/9169/2006 2/85 JUDGMENT 1 Whether Reporters of Local Papers may be allowed to see the judgment? 2 To be referred to the Reporter or not? 3 Whether Their Lordships wish to see the fair copy of the judgment? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the Civil Judge? ============================================================== AMI PIGMENTS PVT. LTD. THR' ITS DIRECTOR - R.R.PATEL & Ors. - Petitioners Versus STATE OF GUJARAT THR' SECRETARY & ANR. - Respondents ============================================================== Appearance : MR SN SHELAT, Senior Advocate, with MR MITUL K SHELAT, Advocate, for the Petitioners in Special Civil Application Nos.9169 to 9190 of 2006. MR MIHIR J THAKORE, Senior Advocate, with Messrs Bijal Chhattrapati, Gaurav Mathur & A M Hava for M/s.SINGHI & Co. for the Petitioners in Special Civil Application Nos.11809, 11810, 12195, 12197, 13498, 13554 of 2006. Messrs Bijal Chhattrapati, Gaurav Mathur & A M Hava for M/s.SINGHI & Co. for the Petitioners in Special Civil Application No.12032 of 2006. MR SN SOPARKAR, Senior Advocate, with MR TANVISH U BHATT, Advocate, for the Petitioners in Special Civil Application Nos.12103, 12104, 18729 all of 2006 and 8158 of 2007. MR S GANESH, Senior Advocate, with MS AMRITA THAKORE & MR NAVIN KUMAR, Advocates, for the Petitioners in Special Civil Application No.12106 of 2006. MR KS NANAVATI, Senior Advocate, for NANAVATI ASSOCIATES for the Petitioners in Special Civil Application Nos.12033 & 12034 of 2006. MR KAMAL B TRIVEDI, Advocate General with MS SANGEETA VISHEN, Assistant Government Pleader for the Respondents in All Petitions. ============================================================== CORAM : HONOURABLE MR.JUSTICE J.M.PANCHAL and HON'BLE SMT. JUSTICE ABHILASHA KUMARI SCA/9169/2006 3/85 JUDGMENT Date : 23-25 & 30 /04/2007 COMMON ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE J.M.PANCHAL) All the above numbered petitions, which are instituted under Article 226 of the Constitution, are directed against Public Circular dated September 2, 2005 issued by the Sales Tax Commissioner, State of Gujarat, whereby it is declared that the view expressed in Public Circular dated February 19, 2001 that the judgment of the Supreme Court rendered in M/S.Coastal Chemicals Limited vs. Commercial Tax Officer, A.P. & Ors., 117 STC 12 = (1999) 8 SCC 465 holding that the natural gas used as fuel cannot be treated as consumable goods, is based on the language of Section 5-B of the Andhra Pradesh General Sales Tax Act, 1957, which is quite different from the language of the Gujarat Sales Tax Act, 1969 and the Rules framed thereunder and, therefore, the principle laid down by the Supreme Court in M/s.Coastal Chemicals Limited (supra) is not applicable to the cases arising under the Gujarat Sales Tax Act, 1969, is no longer valid in view of the decision of the Gujarat Sales Tax Tribunal, Ahmedabad, rendered in Second Appeal No.683 of 2003 filed SCA/9169/2006 4/85 JUDGMENT by M/s.Pandesara Industries Private Limited against State of Gujarat decided on September 28, 2004 and, therefore, Circular dated February 19, 2001 is cancelled with effect from the date of issuance of the said circular, i.e. February 19, 2001. Another common alternative relief claimed in all these petitions is to issue a writ of mandamus or a writ of certiorari or any other appropriate writ or order declaring that the circular dated September 2, 2005 revoking and/or cancelling the circular dated February 19, 2001 does not have any retrospective effect. In addition to above mentioned reliefs, the petitioners in Special Civil Application No.12104 of 2006 have prayed to issue a writ of mandamus or any other appropriate writ or order to set aside judgment dated September 28, 2004 rendered by the Gujarat Sales Tax Tribunal in Second Appeal No.682 of 2003, which was filed by M/s.Pandesara Industries Private Limited against State of Gujarat. 2. As common questions of facts and law arise for determination of the Court in these petitions and joint request SCA/9169/2006 5/85 JUDGMENT is made by the learned counsels for the parties that the petitions be disposed of by a common judgment, this Court proposes to dispose them of by this common judgment. 3. All the above numbered petitions can broadly be categorized into two groups, i.e. Group No.I and Group No.II. Special Civil Application Nos.9169 of 2006 to 9190 of 2006 can be placed in Group No.I wherein it is not the case of the petitioners that they had established their respective units on the basis of any incentive scheme sponsored by the State Government nor they are claiming benefits of any exemption notification issued under Section 49(2) of the Act, but they are relying upon the language of the Gujarat Sales Tax Act, 1969 (“the Act” for short) and the Gujarat Sales Tax Rules, 1970 (“the Rules” for short) to contend that the circular dated September 2, 2005 is bad in law for the reasons stated in the memorandum of petitions. As far as rest of the petitions are concerned, they can be treated as falling within Group No.II wherein the petitioners also claim that they had established their units on the basis of some incentive scheme sponsored by the State Government followed by the exemption notification issued under Section 49(2) of the Act read with the schedule to the notification and, therefore, the circular dated SCA/9169/2006 6/85 JUDGMENT September 2, 2005 should be treated as bad in law and should be set aside. 4. As far as Group No.I is concerned, this Court proposes to refer to the facts mentioned in Special Civil Application No.9169 of 2006 for the sake of convenience. 4.1 The said petition is jointly filed by 22 industries. The petitioners therein are the industries having their units at Vatva Industrial Estate, Ahmedabad. They are engaged in the manufacture of dyes, dye-intermediates and pigments. They use Liquid Diesel Oil (LDO) to generate steam and the steam is supplied to the boiler through pipes in order to obtain the reactions in each stage of manufacturing commencing from Diaszotization 1 st Coupling Tetrazo, 2 nd Coupling, 3rd Coupling, Isolation, Slurry Preparation and Spray Drying. Section 15B of the Act provides that Purchase Tax will be levied upon the goods, which have been used by a dealer within the State as “raw material” or “processing material” or as “consumable stores” in the manufacture of taxable goods. Rule 42 of the Rules provides that the dealer is entitled to claim the tax paid under Section 15B of the Act as a set off. The petitioners claim that they have paid Purchase Tax on the SCA/9169/2006 7/85 JUDGMENT LDO and have been granted set off by the respondent authorities. What is asserted by the petitioners is that in view of the decision rendered by the Gujarat High Court Court in Saurashtra Calcine Bauxite & Allied Industries vs. State of Gujarat, 1993 (91) STC 435 holding that furnace oil used to produce heat in the process of calcination of raw bauxite into calcined bauxite and also used for the purpose of heating the mixture of Soda Ash and Silica in the manufacture of Sodium Silicate, is not merely a fuel, but is a processing material, the applicants in the said cases were given benefit of set off under Rule 42A of the Rules, and, therefore, Circular dated September 2, 2005 is liable to be set aside more particularly when the Division Bench rendered decision after distinguishing the decision of the Supreme Court in Deputy Commissioner of Sales Tax vs. Thomas Stephens & Co. Limited, (1988) 69 STC 320 (SC) and after following the decisions in J.K.Cotton Spinning & Weaving Mills Co. Ltd. vs. Sales Tax Officer, (1965) 16 STC 563 (SC) and Collector of Central Excise vs. Ballarpur Industries Limited, (1990) 77 STC 282 (SC). According to the petitioners, after the Supreme Court took the view in Coastal Chemicals Limited (Supra) that natural gas used by the appellant therein as fuel for manufacturing paper SCA/9169/2006 8/85 JUDGMENT and paper products was not “consumables” in view of the language of Section 5-B of the A.P. General Sales Tax Act, 1957, the Commissioner of Sales Tax, Ahmedabad, issued a circular dated February 19, 2001 clarifying that the judgment of the Supreme Court in Coastal Chemicals Limited (supra) would not be applicable to the cases arising under the provisions of the Act because (1) the provisions of the A.P. General Sales Tax Act, 1957 and those of the Gujarat Sales Tax Act were different and (2) the Sales Tax Tribunal as well as the Gujarat High Court had held that the gas used for the purpose of fuel was included within the meaning of the term “consumable stores” appearing in Section 15B of the Act and, therefore, there would not be any change in the existing legal position on account of the judgment of the Supreme Court in M/s.Coastal Chemicals Ltd. (supra) and that the price of the gas used as fuel was admissible as set off. The petitioners have mentioned that they had/have acted in terms of the circular dated February 19, 2001 issued by the Commissioner of Sales Tax and that the returns have also been filed by them, which had/have been accepted by the respondents, but after circular dated September 2, 2005, the respondents are now disallowing the set off of the LDO claimed in the returns filed SCA/9169/2006 9/85 JUDGMENT for the assessment years 2001-2002 onwards, which is illegal. The petitioners have referred to the circular dated September 2, 2005 issued by the Commissioner of Sales Tax whereby it is clarified that the view expressed in Public Circular dated February 19, 2001 that the judgment of the Supreme Court rendered in M/s.Coastal Chemicals Limited (supra) is based on the language of Section 5B of the Andhra Pradesh General Sales Tax Act, 1957, which is quite different from the language of the Act and the Rules framed thereunder and, therefore, the principle laid down by the Supreme Court in M/s.Coastal Chemicals Limited (supra) is not applicable to the cases arising under the Act, is no longer valid in view of the decision of the Gujarat Sales Tax Tribunal, Ahmedabad, rendered in Second Appeal No.682 of 2003 filed by Pandesara Industries Private Limited against State of Gujarat decided on September 28, 2004 and, therefore, the circular dated February 19, 2001 is cancelled with effect from the date of issuance of the said circular, i.e. February 19, 2001, to contend that the judgment of the Tribunal, which is referred to in Circular dated September 2, 2005, was inter party and restricted to the facts of that case and, therefore, the same could not have been made basis for the purpose of SCA/9169/2006 10/85 JUDGMENT withdrawing benefits conferred upon the petitioners by the circular dated February 19, 2001. According to the petitioners, in fact, the LDO is used as processing material in the manufacturing process by the petitioners whereas in absence of the same, it is not possible for the petitioners to undertake the manufacturing process and, therefore, the petitioners would be entitled to set off as provided by the law. The petitioners have averred that they have acted upon the representation made by the respondents in Circular dated February 19, 2001 and had submitted their returns claiming set off because the LDO was used by them in the manufacturing process and, therefore, the benefits conferred by circular dated February 19, 2001 could not have been withdrawn with retrospective effect. The petitioners have claimed that in Saurashtra Calcine Bauxite & Allied Industries (Supra), the furnace oil, which was used by the manufacturer for the purpose of heat treatment, was regarded as a processing material and, therefore, the circular dated September 2, 2005 being contrary to the said decision is liable to be set aside. The petitioners have claimed that they have acted upon the circular dated February 19, 2001 whereby the LDO was regarded as processing material, but the impugned SCA/9169/2006 11/85 JUDGMENT circular seeks to resile from the said representation, which is illegal and, therefore, the impugned circular is liable to be set aside on the basis of the principle of promissory estoppel. Under the circumstances, the petitioners have filed the instant petitions and claimed the reliefs to which reference is made earlier. 4.2 On service of notice, Mr.Rameshkumar Parmar, Assistant Commissioner of Commercial Tax in the Office of Commissioner of Commercial Tax, Gujarat State, has filed affidavit-in-reply dated September 6, 2006 on behalf of the respondent No.2 controverting the averments made in the petition. In the reply, it is mentioned that the writ petition is filed by the petitioners who, in reality, seek to halt regular assessment proceedings and, therefore, the petition should be dismissed. It is stated in the reply that the assessment proceedings are being held by the quasi judicial authorities which are not bound by the circulars issued by the Department and as the petitioners are free to raise the contentions and submissions, which are mentioned in the petitions before the quasi judicial authorities during the course of the assessment proceedings, the instant petitions should not be entertained. What is emphasised in the reply is that if by chance, the SCA/9169/2006 12/85 JUDGMENT contentions and submissions raised by the petitioners before the quasi judicial authorities are not accepted, they have efficacious alternative remedy available by way of First Appeal before the specified appellate authority as well as second appeal before the Gujarat Sales Tax Tribunal at Ahmedabad and, therefore, the instant petitions should not be entertained by the Court. 4.3 Mr.Rajendrabhai R. Patel, who is authorised signatory of the petitioner No.1, i.e. M/s.AMI Pigment Private Limited, has filed affidavit-in-rejoinder on behalf of the petitioners stating, inter alia, that in Circular of 2001, the respondents had clarified that the raw materials and stores used in the manufacturing process would be entitled to set off and, therefore, they are estopped from contending to the contrary nor they are entitled to withdraw or revoke the said circular with retrospective effect. In the said rejoinder on behalf of the petitioners, the points, which are urged in the petition, have been reiterated and, therefore, this Court is of the opinion that it is not necessary to refer to the same in detail. 4.4 Mr.Shankerbhai Patel, who is authorized signatory SCA/9169/2006 13/85 JUDGMENT of the petitioner No.10, has filed affidavit dated March 19, 2007 on behalf of the petitioners for the purpose of placing on record the relevant abstracts of the assessment orders for the year 2000-2001 in respect of the petitioner No.9 company and the relevant abstracts of the assessment orders for the year 1999-2000 in respect of the petitioner No.10 company as well as the relevant abstracts of the assessment orders for the year 2000-2001 in respect of the petitioner No.18 company. The said authorized signatory has also produced on record of the petitions, abstracts of the assessment orders passed in respect of those companies. What is relevant to notice is that in paragraph 4 of the said affidavit, it is mentioned that the petitioners are engaged in the manufacture of dyes, dyes- intermediates and pigments and that the LDO is used in the process of manufacturing of dyes, dyes-intermediates and pigments. It is further stated in the said paragraph that diesel is used to generate steam and the steam is essential for obtaining reactions in each stage of manufacturing commencing from Diaszotization 1 st Coupling, Tetrazo, 2 nd Coupling, 3rd Coupling, Isolation, Slurry Preparation and Spray Drying and that in absence of the steam, which is generated by using the LDO, reactions aforementioned cannot SCA/9169/2006 14/85 JUDGMENT be achieved. Enumerating the manufacturing process, the authorised signatory of the petitioner No.10-company has asserted that the LDO is an integral part of manufacturing process and, therefore, would fall within the meaning of the phrase “raw material” or “processing material” or “consumable stores” appearing in the Act and the Rules framed thereunder. 4.5 Mr.Shankerbhai Patel, who is authorized signatory of the petitioner No.10-company, has filed another affidavit dated March 22, 2007 on behalf of the petitioners for the purpose of placing on record order dated October 26, 1999 passed under Section 62 of the Act, inter alia, holding that the furnace oil used in the process of manufacturing for heating process is a processing material. 4.6 Mr.Rameshkumar Parmar, Assistant Commissioner of Commercial Tax in the Office of Commissioner of Commercial Tax, Gujarat State, has filed further affidavit-in- reply dated April 2, 2007 on behalf of the respondents for the purpose of putting on record the manufacturing process undertaken by the petitioners to demonstrate that the Furnace Oil, LDO, etc. used by them for generating the steam cannot, by any stretch of imagination be regarded either as raw SCA/9169/2006 15/85 JUDGMENT materials or processing materials or consumable goods in the manufacture of their final products, i.e. dyes, dye- intermediates and pigments. In the said affidavit, it is asserted that the furnace oil and/or LDO never gets used up or consumed or burnt up or wasted or remains in an identifiable or unidentifiable form in the aforesaid final products. To substantiate this assertion, it is stated that the petitioners use furnace oil/LDO for firing a boiler whereby the water contained therein gets converted into steam which, in turn, is carried through pipelines to the reactor, which normally consists of two vessels, i.e. a bigger vessel containing a small one and between the two, the steam travelling through pipelines enters for creating uniform temperature. It is further explained that the said reactor is filled with raw materials like Vinyl Sulphone, Gama Acid, K-acid, etc. wherein chemical reaction takes place and ultimately the above referred to final products get manufactured. What is emphasised in the said reply is that after pronouncement of the judgment of the Supreme Court in the case of M/s.Coastal Chemicals Limited (supra), it was realised that the above referred to Furnace Oil/LDO cannot and would not qualify to be either raw material or processing material or consumable store in the SCA/9169/2006 16/85 JUDGMENT manufacture of finished final products, i.e. dyes, dye- intermediates, pigments, etc. of the petitioners and/or can at the most be considered to be raw material for producing the steam and, therefore, the circular dated September 2, 2005 cannot be regarded as illegal. In paragraph 5 of the said affidavit-in-reply, it is mentioned that under the pretext of challenging validity of circular dated September 2, 2005, the petitioners want to halt further proceedings with reference to reassessment, etc., which is not permissible and if in law, the tax leviable at full rate on the aforesaid products is not available for set off, nothing should prevent the authorities from recovering the tax within the period of limitation available under Act since there cannot be estoppel against the statute. It is further emphasised that it is well established position of law that law declared by the Supreme Court is binding on all Courts, Tribunals and Authorities within the territories of the country and, therefore, the contrary view expressed in any circular perforce looses its validity and becomes non-est. 5. Having noticed the relevant pleadings of Special Civil Application No.9169 of 2006, it would be relevant to notice the facts of Special Civil Application No.11809 of 2006. SCA/9169/2006 17/85 JUDGMENT 5.1 By filing this petition, the petitioner has prayed to issue a writ of mandamus or a writ of certiorari or any other appropriate writ or order to set aside circular dated September 2, 2005 issued by the Sales Tax Commissioner, State of Gujarat, Ahmedabad, referred to above. The petitioner has also prayed to quash the letters dated September 7, 2005 asking Gas Authority of India Limited (GAIL) and Gujarat Gas Limited not to supply fuel against appropriate Declaration Form at the concessional rate of sales tax at which the petitioner has been purchasing the fuel for its manufacturing activity. The petitioner has further prayed to direct the respondent Nos.2 and 3 to refund excess tax collected than eligible under the Sales Tax Incentive Scheme and accept Form No.20 in lieu thereof. The petitioner has also claimed declaration that the petitioner is entitled to the sales tax exemption available on purchase of fuel for its unit under the Sales Tax Exemption Scheme. The petitioner has also prayed to direct the respondent No.3 to withdraw the letters dated September 7, 2005 issued to GAIL and Gujarat Gas Limited for not accepting Form No.20 filed by the petitioner for availing of the benefit of concessional rate of sales tax on the natural gas purchased by it. SCA/9169/2006 18/85 JUDGMENT 5.2 The petitioner is a public limited company engaged in the business of manufacture and marketing of float glass. The case of the petitioner is that the State Government had passed a resolution known as “Special Incentive to Pioneer Units Scheme 1986” to give special package and certain higher benefits under its Incentive Policy based on the categories of backwardness of the areas whereas the Government of Gujarat had also issued another notification dated June 25, 1987 for Composite Sales Tax Incentive Scheme, 1987 for pioneer industrial units and, therefore, the petitioner had established its unit at the address mentioned in the cause title of the petition. The claim made by the petitioner is that the petitioner has been purchasing natural gas from Gas Authority of India Limited to be used as fuel for the float glass manufacturing process and has availed sales tax benefits under the composite scheme in the nature of concessional purchase rate of tax for purchase of raw material, processing material, consumable store and packing material. The petitioner has referred to Entry 175 of Notification issued under Section 49(2) of the Act and claimed that the natural gas purchased by the petitioner from GAIL against the relevant Form at concessional rate of sales tax is used directly in the SCA/9169/2006 19/85 JUDGMENT manufacturing process of the petitioner. After referring to circular dated February 19, 2001, which clarified that the decision of the Supreme Court in M/s.Coastal Chemicals Limited (supra) was not applicable to the provisions of the Gujarat Sales Tax Act, 1969 in view of difference in language of the two statutes, it is mentioned that the respondent No.3 was not justified in issuing circular dated September 2, 2005 cancelling circular dated February 19, 2001 with retrospective effect nor was justified in addressing the letter dated September 7, 2005 to GAIL informing that natural gas should not be sold against Form No.26/40 and the sales tax payable should be paid at the full rate instead of 0.25% failing which stern recovery actions would follow. According to the petitioner, the natural gas purchased by the petitioner from the GAIL is used as processing material in the manufacture of its goods and, therefore, the petitioner is eligible to purchase the same at concessional rate. The petitioner has claimed that circular dated September 2, 2005 is liable to be set aside for the reasons mentioned in the petition. In the alternative, it is mentioned that circular dated September 2, 2005 could not have been issued with retrospective effect so