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Whether the oxygen gas is used as “raw material” in the manufacturing process of steel or not?

Court name – Supreme Court

Judgement Name – State of Jharkhand and others v. Linde India Limited and Another , CIVIL APPEAL NOS. 8061-8064 OF 2022

Judgement date – December 02, 2022.

Judges/bench – Mr. Shah, M.M. Sundresh


Introduction –

The tax rate depends upon a particular thing’s usage. In this case, using oxygen as a ‘ raw material’ is challenged to claim the concessional tax rate. So, the question before the court is whether the oxygen used is a raw material or a refining agent.


Brief facts of the Case –

A certificate under Section 6 of the Bihar Finance Act, 1957 was issued in the name of Linde India Limited. A certificate under Section 8 of the Bihar Finance Act, 1981 was issued in the name of Tata Steel .Respondent No.1 (Linde India Limited), who is a manufacturer of pure oxygen sold the oxygen to respondent No.2 (Tata Steel). Thereafter, the State issued a fresh notification directing that the tax rate on raw materials shall be at the rate of 2%. Respondent No. 1 raised a dispute with respect to the rate of concessional rate of tax. By the impugned order, the High Court has allowed the said writ petition and set aside the orders passed by all the authorities below, holding that the oxygen can be said to be a “raw material” and therefore Respondent No. 1 is entitled to concessional rate of tax at 2%. The impugned judgment passed by the High Court is the subject matter of present appeals.


Contentions of the Appellant/s –

The appellant’s Contentions were:

  • The authorities’ findings below declared the oxygen a ‘refining agent’. It does not fall in the category of other goods used in manufacturing.
  • The oxygen sold cannot be said to be a ‘raw material’ in steel manufacturing. It can only be said to be part of the manufacturing process.
  • The High Court has erred in interfering with the concurrent findings of the three authorities below. Besides, it was not required to interfere with the findings under Article 226 of the Constitution of India.
  • Goods used for ancillary purposes in the process of the manufacture cannot be said to be “raw material” Hence, ‘oxygen gas’ cannot be said to be a “raw material” in the manufacture of steel. Therefore, the rate of tax at 3% would be leviable.
  • Lastly, The respondents continued to pay a 3% tax on pure oxygen until the State of Bihar bifurcation into the State of Bihar and the State of Jharkhand. And no dispute was raised by the respondents at any point of time.


Contentions of the Respondent/s –

The Respondent’s Contentions were:

  • Oxygen is directly used in manufacturing steel, making it a raw material. As a result, respondents are entitled to the benefit of a concessional rate of tax under Section 13(1)(b) of the Bihar Finance Act, 1981.
  • The High Court has rightly held that a ‘refining agent’ can also be a “raw material” if it is indispensable, non-replaceable, and used in large quantities, which is inevitable to be used.
  • The manufacturing process for making steel adopted is known as Basic Oxygen Steel (BOS) method, in which oxygen is a raw material for manufacturing steel. Further, if the oxygen gas is used as a “raw material”, it would be taxed @ 2% of sales tax.
  • It is also submitted that the stage of manufacture is not decisive about the using of “raw material.”


Principles and observations of the Court –

The High Court, in the exercise of powers under Article 226 of the Constitution of India, is not sitting as an appellate court against the findings recorded on appreciation of facts and the evidence on record.


Judgement held-

By applying the law laid down in Thomas Stephen & Co. Ltd. and the findings by the assessment committee, the court held that oxygen gas cannot be considered a “raw material”. In addition, it held that oxygen gas is used as a ‘refining agent’, and its primary function is to reduce the carbon content as per the requirement. Consequently, the respondents are not entitled to the concessional rate of tax @ 2% treating the same as “raw material”, and are liable to pay tax @ 3% on the sale thereof. SC stated that the High Court lacks the expertise to decide the disputed questions, particularly the technical aspect, which could have been left to the Committee consisting of experts. Hence, quashed the impugned order passed by the High court and restored the assessment order by the assessing officer. viiiThe appeals are accordingly allowed.

Opinion –

I agree with the decision of the Court. Moreover , the High Court should not have interfered with the committee’s findings as the committee members were the experts in that particular field. And the same cannot be held true for the judges as they are not well versed in the technical aspects of things.


Written by: Stuti Nayak

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