State of Jharkhand and Ors. Vs. Linde India Ltd. and Anr

Case Number: Civil Appeal Nos. 8061-8064 of 2022
Judges Name: Hon’ble Judges M.R. Shah, Justice C.T. Ravikumar J
Order dated: 02.12.2022

Facts of the Case:  

  1. M/s Linde India Limited (Respondent No.1) is involved in the manufacture of oxygen which it duly provides to M/s. Tata Steel Ltd (Respondent No.2) for steel production. The State of Bihar on 12.04.1982 has issued a notification under Section 13(1)(b) of the Bihar Finance Act, 1981which notified a special rate of tax at 1% for “raw material inputs” and for other materials it was 3%. Moreover, a certificate was issued under Section 8 of the Bihar Finance Act to Tata Steel as per which oxygen gas was to be taxed at 3%. The State Government later issued another notification on 09.09.1983 under the said act directing that the tax payable in 2% on raw materials for use in manufacturing or processing of goods for sale. 
  2. The Respondent No.1 contends that the oxygen that is used by Tata Steel; should be treated as a raw material that is used in the production of steel, and a tax rate of 2% should be levied on them but the requisite Assessing Authority was of the view that the sale of oxygen is not of raw materials but of goods other than raw materials and tax rate of 3% should be applicable.
  3. Respondent No.1 had filed a Writ Petition in the Hon’ble Jharkand High Court which was dismissed by the High Court on the grounds that Respondent No.1 had no locus as the tax was payable by Tata Steels, who is the purchaser of oxygen from Respondent No.1 and the court also formed a six-member committee to assess whether the oxygen can be treated as raw material. The committee report laid out that the oxygen is only a refining agent and not a raw material. 
  4. The Assessing Officer on 02.01.2011 passed an assessment order holding the oxygen to solely be a refining agent and thus would attract 3% tax on the basis of which the Deputy Commissioner, Commercial Taxes raised a demand notice to the Respondent No.1. Aggrieved by the order and the demand notice, the Respondent filed an appeal under the Bihar Finance Act, before the Joint Commissioner which was dismissed via an order, and a subsequent Revision Appeal was also dismissed. A second writ petition was filed before the High Court, which allowed the petition and ordered that oxygen can be considered as a raw material and thus will attract 2% tax. 
  5. Aggrieved by this order, the present Civil Appeal has been filed by the State of Jharkand before the Supreme Court. 

Hon’ble Supreme Court observed/held as follows:

  • The Supreme Court held that the oxygen is not a raw material for the manufacture of steel, and will thus not qualify for concessional sale tax rate. 
  • The Apex Court relied on the case Thomas Stephen & Co. Ltd, wherein the court had clearly laid out that in order to qualify as raw material, it must necessarily and in all cases go into, and be found in the end product. 
  • The oxygen is used only as a refining agent and as per the report of the six-member committee, the function of the oxygen is only to reduce the carbon content and not to create the product itself. Thus, the concessional rate of 2% shall not be availed. 
  • The order of the High Court was quashed and the orders of the assessing authority and the other authorities were restored. 

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